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Edited Transcript of IART earnings conference call or presentation 24-Jul-19 12:30pm GMT

Q2 2019 Integra Lifesciences Holdings Corp Earnings Call

PLAINSBORO Jul 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Integra LifeSciences Holdings Corp earnings conference call or presentation Wednesday, July 24, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Carrie Anderson

Integra LifeSciences Holdings Corporation - Corporate VP, CFO & Principal Financial Officer

* Glenn G. Coleman

Integra LifeSciences Holdings Corporation - COO & Corporate VP of International

* Michael Beaulieu

* Peter J. Arduini

Integra LifeSciences Holdings Corporation - President, CEO & Director

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Conference Call Participants

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* Craig William Bijou

Cantor Fitzgerald & Co., Research Division - Research Analyst

* Jayson Tyler Bedford

Raymond James & Associates, Inc., Research Division - Senior Medical Supplies and Devices Analyst

* Matthew Oliver O'Brien

Piper Jaffray Companies, Research Division - MD and Senior Research Analyst

* Matthew Stephan Miksic

Crédit Suisse AG, Research Division - Senior Research Analyst

* Rajbir Singh Denhoy

Jefferies LLC, Research Division - MD, Equity Research & Senior Equity Research Analyst

* Robert Justin Marcus

JP Morgan Chase & Co, Research Division - Analyst

* Ryan Benjamin Zimmerman

BTIG, LLC, Research Division - Director & Medical Technology Analyst

* Shagun Singh Chadha

Wells Fargo Securities, LLC, Research Division - Associate Analyst

* Steven Michael Lichtman

Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst

* Travis Lee Steed

BofA Merrill Lynch, Research Division - VP

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Presentation

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Operator [1]

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Good day, and welcome to the Integra LifeSciences Second Quarter 2019 Financial Results Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mike Beaulieu. Please go ahead, sir.

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Michael Beaulieu, [2]

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Thank you, Audra. Good morning, and thank you for joining the Integra LifeSciences Second Quarter 2019 Earnings Conference Call. Joining me on the call are Peter Arduini, President and Chief Executive Officer; Glenn Coleman, Chief Operating Officer; Carrie Anderson, Chief Financial Officer and Sravan Emany, Senior Vice President, Strategy, Treasury and Investor Relations.

Earlier this morning, we issued a press release announcing our second quarter 2019 financial results. The release and corresponding earnings presentation, which we will reference during the call, are available at integralife.com under Investors, Events & Presentations in the file named Second Quarter 2019 Earnings Call Presentation. Before we begin, I'd like to remind you that many of the statements made during this call may be considered forward-looking statements. Factors that can cause actual results to differ materially are discussed in the company's exchange act reports filed with the SEC and in the release. Also the discussions will include certain non-GAAP financial measures. Reconciliations of any non-GAAP financial measures can be found in today's press release, which is an exhibit to Integra's current report on Form 8-K, filed today with the SEC. I'll now turn the call over to Pete.

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Peter J. Arduini, Integra LifeSciences Holdings Corporation - President, CEO & Director [3]

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Thank you, Mike, and good morning, everyone. If you turn to Slide 4 in the earnings presentation, I'd like to start by reviewing some of our second quarter highlights. Total revenues in the quarter were $384 million, representing organic growth of 6.6%, which was above the guidance we provided in April. Our outperformance was driven by new product launches, strong U.S. and international demand for our portfolio of neurosurgery products, the ongoing success of the Codman integration and stability in our global commercial channels.

In the second quarter, adjusted earnings per share increased 22% to $0.73, and our adjusted EBITDA margin increased 200 basis points to approximately 25% compared to the prior year.

Based on our strong results in the first half, we're reaffirming our full year 2019 organic revenue growth guidance of approximately 5% and raising our adjusted earnings per share guidance to a new range of $2.70 to $2.75, an increase of $0.05 at the midpoint from our prior guidance.

In the Codman Specialty Surgical segment, we began the commercial launch of our new products ahead of schedule. These products, which are being well received by our customers include CereLink, our ICP monitor; CERTAS Plus, our family of hydrocephalus management products; and the Integra DUO, our new LED surgical headlight. As we near completion of the integration and continue to leverage our experienced R&D team, we're well positioned to increase investments in our existing product pipeline and pursue external opportunities in the second half of 2019. We're also pleased to announce that in late June, we successfully completed our first clinical case using DuraGen in Japan. As a reminder, DuraGen is the first and only collagen xenograft approved for use as a dural substitute in Japan, and we're proud to be able to offer surgeons our proven product that has benefited more than 2 million patients.

During the second quarter, international revenue growth in both our segments achieved the highest levels since we closed the acquisition. International scale was one of the strategic benefits we expected to achieved from the Codman acquisition. And as we exit the second quarter, we've taken control of commercial activities in the majority of Day 2 countries. Next month, we expect to close the transition service agreement in Japan, which represents the last substantial Codman TSA. Where our guidance reflects some risks in the third quarter as we complete our integration work, we're confident that we have the right structure in place and are making the right investments to achieve scale and growth from our international markets.

Moving to our Orthopedics & Tissue Technologies segment. Wound Reconstruction grew mid-single-digits in the second quarter. Sales in outpatient wound care increased double digits over the prior year with strength in product like MEDIHONEY and Total Contact Cast as well as our advanced tissue products portfolio, which saw growth accelerate sequentially from the first quarter.

In our Surgical Reconstruction channel, global sales of SurgiMend increased double digits. We believe there are significant global opportunities to expand this product line for plastic and reconstructive procedures and plan to make additional investments in the second half of 2019. Second quarter performance in our orthopedics business was flat despite case scheduling delays by several high-volume users. And to the first half of 2019, orthopedics has grown at a low single-digit rate. As we move into the second half of the year, revenue growth should increase to a mid-single-digit pace, driven by recent launched products and our dedicated orthopedics channel.

To summarize our performance in both segments through the first half of 2019, we're on track or ahead of our full year financial and operational goals. Ramping up our second quarter highlights, I'd like to congratulate Glenn Coleman on his recent promotion to the newly created role of Chief Operating Officer; and welcome Carrie Anderson, who is appointed Chief Financial Officer. Glenn's proven leadership and deep understanding of our business make him an ideal candidate to assume the day-to-day operations of the company. The creation of this role will give me more time to focus on executing our long-term growth strategy. Carrie joins our Executive leadership team from Dover Corporation, a diversified global manufacturing company. She brings broad-based global financial experience as well as expertise in manufacturing and engineering. She most recently served as Chief Accounting Officer and Corporate Controller of Dover, responsible for corporate accounting and global financial planning. The creation of the COO position and the addition of Carrie as CFO will expand the capabilities of our Executive leadership team, drive consistency in our execution and further enable the company to achieve our goals.

Now I'd like to turn the call over to Carrie to make a few comments before Glenn discusses our second quarter financial performance. Carrie?

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Carrie Anderson, Integra LifeSciences Holdings Corporation - Corporate VP, CFO & Principal Financial Officer [4]

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Thanks, Pete, and good morning. I'm excited to join Integra as we enter a new period of growth for the company. And as Steve mentioned, most of my professional experience has been with complex finance and manufacturing operations. And while I'm only 4 weeks into my new role at Integra, I'm impressed with the quality of the finance organization under Glenn's prior leadership, and I look forward to working with the team to accelerate Integra's growth. I would like to thank Pete, Glenn and all of my colleagues at Integra who has assisted with my onboarding thus far, and I look forward to getting on the road over the coming weeks and months to meet with employees and the broader investment community. And with that, I'll hand the call over to Glenn.

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Glenn G. Coleman, Integra LifeSciences Holdings Corporation - COO & Corporate VP of International [5]

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Thanks for the kind words, Carrie. We're off to a great start with the transition, and I look forward to partnering with you in my new role.

Turning to the second quarter. Total revenues were $383.6 million, representing growth of 4.8% on a reported basis and 6.6% on an organic basis. This better-than-expected performance was driven by broad strength across our Codman Specialty Surgical, or CSS segment, both in the U.S. and outside the U.S. Our strong top line results led to adjusted earnings per share that were $0.06 above the top end of our guidance range and represented growth of 21.7% over the prior year period.

If you turn to Slide 5, I'll review our CSS segment. Reported revenues were $249.2 million in the second quarter, an increase of 6.2% on an organic basis. Within our global neurosurgery business, sales in Dural Access and Repair increased low single digits compared to the prior year's quarter, with growth in both grafts and sealants. We expect to see growth continue at this pace for the remainder of 2019. Sales in flow and pressure monitoring increased double digits and were well above our expectations. As Pete mentioned, our strong sales performance was largely driven to the relaunch of our service plus portfolio, which includes new valve configurations, electronic toolkit and a clinically focused marketing program. The franchise also benefited from stronger demand from early adopters of our CereLink ICP monitor. With this recent product launch, we're investing in experienced neurocritical care specialists who can provide in-servicing, education and customer support. Our commitment to the unique needs of these compromised patients will now include both the increase in the comprehensive portfolio of solutions, coupled with the attendant clinical support that customers expect and deserve.

During the second half of the year, we expect these products will be the 2 fastest-growing product families within CSS and will grow double digits. Wrapping up the discussion of our neurosurgery business, sales in advanced energy increased approximately 5%.

Sales of CUSA Clarity and the associated recurring revenue stream from our disposable products outside the U.S. drove this growth. Our full year guidance for this franchise assumes low to mid-single-digit growth as selling cycles for capital equipment will likely extend due to competitive product launches.

Moving to precision tools and instruments. Revenues increased mid-single-digits compared to the prior year with strength in acute surgical instruments and cranial stabilization. In July, as part of our ongoing strategic portfolio analysis, we made the difficult decision to announce the future closure of our locations in Pennsylvania and Mexico. These sites make endodontic products and accessories such as dental files and mirrors. The shutdowns will result in an estimated annual revenue impact of $10 million, with minimal impact to adjusted earnings per share since these are lower-margin products.

For the remainder of the year, we're guiding PT&I for low single-digit organic growth, in line with the long-term outlook for the business. CSS international sales were a clear bright spot in the quarter increasing 9%, driven by commercial stability in Europe, solid execution on Day 2 countries and strong growth in Canada, China and Japan. Based on a strong first half performance and second half expectations for each of the CSS franchises, we're modestly increasing our CSS reported revenue growth guidance for the full year to slightly greater than 2% and are also raising our organic growth guidance to slightly more than 4%.

Let me now move to Orthopedics & Tissue Technologies or OTT segment on Slide 6. Second quarter revenues were $134.4 million, representing an increase of 7.2% on an organic basis compared to the prior year. Wound reconstruction increased mid-single-digits in the second quarter with growth coming from our outpatient wound care portfolio and the plastic and reconstructive products, both of which grew double digits.

In addition, our inpatient business increased mid-single-digits in the quarter, driven largely by sales of PriMatrix.

Revenues in our private label business grew 15%, largely due to timing. As a reminder, the private label business can be lumpy on a quarterly basis, but over the long-term, organic revenues are expected to grow in the mid- to high single digits. Organic growth in our orthopedics business was roughly flat for the second quarter. Our lower fixation portfolio improved sequentially as growth in our new Panta II Nail helped us stabilize this business.

Sales in our ankle portfolio grew in the low single digits as the recent launch of our XT revision ankle is performing well, despite key scheduling delays at several of our high-volume accounts. Our upper extremity product lines increased mid-single-digits with growth in both our shoulder and wrist. We expect organic growth of our orthopedics business to accelerate into the mid-single digits during the second half of the year based on new product launches and an increasing momentum of our focused sales channel. International sales within OTT increased double digits, driven by strength in our regenerative portfolio in both Europe and Canada. For the full year 2019, our reported inorganic growth guidance for the total OTT segment remains unchanged.

Turning to Slide 7, I'll now review the key P&L components below revenue for the second quarter 2019. GAAP and adjusted gross margin were essentially unchanged from the prior year. Our adjusted EBITDA margin was 25.5% in the second quarter, an increase of 200 basis points compared to the prior year and was driven mainly by improved operating leverage. Based on a strong second quarter performance, we now expect to be at 24.5% for the full year, which is at the high end of our previous guidance range. Our adjusted tax rate was 18.8%, in line with our guidance and about 1 full point higher than last year due to a lower deduction from stock-based compensation.

GAAP earnings per share were $0.34 in the second quarter compared to $0.14 in the prior year. Adjusted earnings per share were $0.73, representing growth of nearly 22%. The improvement was the result of higher revenue, improved operating leverage and a lower interest expense.

For the full year 2019, we are reaffirming our total reported revenue guidance range of $1.515 billion to $1.525 billion, representing growth in the range of 3% to 4% and organic revenue growth of approximately 5%.

Moving to earnings per share, we're reaffirming our GAAP EPS guidance range of $1.46 to $1.53. However, we're increasing the midpoint of our adjusted earnings per share by $0.05 to a new range of $2.70 to $2.75.

For the third quarter, we expect reported revenues of between $373 million and $378 million, which represents organic growth of approximately 4%. This guidance reflects a sequential decline of $5 million in sales due to timing.

Roughly $3 million was on orders of our new products placed with some of our early adopters and $2 million was in our private label business, both of which were realized in the second quarter. We expect third quarter adjusted earnings per share to be in the range of $0.64 to $0.67, which at the midpoint represents growth of approximately 10% over the prior year.

Turning to Slide 8. I'll now discuss our cash flow performance. Our operating cash flow in the second quarter was $48.5 million, an increase of over $12 million compared to the prior year. Free cash flow conversion on a trailing 12-month basis as of June 30 was 54%, an improvement of more than 12 points over the prior year. As we indicated on our first quarter earnings call, we expect an improvement in cash flows during the second half of the year as we move past the spending associated with Codman integration activities. As of June 30, our bank leverage ratio was 2.8x. We're making a strong flexible balance sheet with cash and cash equivalents of $176 million and capacity on our revolver of approximately $1 billion to support potential future tuck-in acquisitions.

And with that, I'll turn the call back over to Pete.

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Peter J. Arduini, Integra LifeSciences Holdings Corporation - President, CEO & Director [6]

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Thanks, Glenn. If you turn to Slide 9, I'd like to provide a few summary thoughts on the company relative to the focus areas we communicated in February. Our strong financial results in both segments through the first half of the year give us confidence that we can achieve our full year 2019 financial targets. We've launched 10 new products into a larger and more focused global commercial organization on or ahead of schedule. We also achieved the fastest growth from our international business since we closed the Codman acquisition, which helped drive better-than-expected performance in the second quarter.

With organic revenue growth of 4.9% through the first half of the year, we've reduced the ramp required to meet our full year guidance of 5%.

During the third quarter, the teams are focused on exiting the TSA with J&J in Japan and taking control of all substantial Day 2 countries, thus completing the majority of the commercial integration work associated with the Codman acquisition. As these integration activities wind down, we'll make further investments in our product pipeline to drive future growth and this is an area I plan to spend more time on and is a benefit of our new leadership structure with our global scale in the neurosurgery market and a highly effective commercial channel, we're investing in technologies that can drive upside to our plan.

On the Orthopedics & Tissue Technologies side of the house, we're investing to meet the increasing demand across our regenerative portfolio. We're increasing manufacturing capacity and resources to support our existing leadership positions and also enter new markets, finishing the first half of 2019 in orthopedics with positive growth was an important milestone in turning around this franchise, and we look to accelerate growth in the back half.

Finally, with our relevant scale in neurosurgery and Regenerative Technologies, we continue to work with customers to develop value-based health care products and services and deliver them through our innovative contracting solutions.

In summary, we believe we have the team and plans in place to achieve or beat the goals we set in 2019 and expect to see organic revenue growth accelerate above 5% in 2020.

That concludes our prepared remarks. Thanks for listening. And operator, would you please open up our lines for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll go first to Raj Denhoy at Jefferies. Hearing no response, we'll move to Matt Miksic with Crédit Suisse.

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Matthew Stephan Miksic, Crédit Suisse AG, Research Division - Senior Research Analyst [2]

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So congrats on a strong second quarter and the sort of progression that you talked about throughout the year kind of improving visibility and growth. And I just wanted to maybe get a sense, Q3 feels like a transitional quarter and wanted to get a sense of maybe what some of the key drivers are in Q3 in terms of new products or continued momentum in new products or sort of improving visibility? And can we get those in the third quarter, at the end of the third quarter? How do you think about this sort of pivoting -- pivot around Q3?

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Peter J. Arduini, Integra LifeSciences Holdings Corporation - President, CEO & Director [3]

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Yes. I would say, Matt, look, if you think about it, Glenn commented about we had some benefit in Q2 that we're expecting in Q3. Again, it was about $5 million. And some of that was with new products, some of those was private label. So we talked about $2 million in private label, which you remember is lumpy. But that business continues to do well. And the other portion of the 3 was tied actually to some of our new monitor launches, which are being perceived very well. The fact is, we actually had uptake sight unseen with the monitors, and those sales came in sooner than we expected. Typically, we demo the product, there's a whole value discussion, and then it takes place. And so we benefited early in Q2.

As it relates to Q3, I think all those launches we expect to continue to advance and grow, most of the products that we launched either in OTT or CSS have about a 3-year peak sales window. So with us only being 6 months into it, we're very early into this cycle, and we think all of those are going to perform at a much higher level. So I would say, if you think about Q3 across the board, OTT through our plastic and reconstructive, our wound care products, advanced wound care, we expect all of those to continue to perform well and all of the new products within CSS.

I think the 1 hedging point that we laid out is the fact that there is some new competition that's coming into a few areas. We've talked about that. We think we've got products that are actually superior, but the fact is, is that the demo cycle, the time customers will take to look at them will extend the sales cycle out. And that's part of why we've been a little bit more cautious about how we think about the overall third quarter. Glenn, you may want to add something to those.

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Glenn G. Coleman, Integra LifeSciences Holdings Corporation - COO & Corporate VP of International [4]

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Yes, the only thing I would add relative to the third quarter is keep in mind, we're going to be getting off of our last significant TSA with J&J in Japan. The reason why it's last, it is the most complicated one. And while we've done these really well previously, we're being a bit cautious relative to expectations in Japan. We're going to have to put a lot of resources on this to make sure we get it done right. And I would also say still being cautious on Day 2 countries. Although we've taken most of those over now seeing better performance but I'm going to continue to be cautious through the back half of the year until we see a trend of consistent growth coming out of these countries, but all in all, combination of those items, the new competitor entrants into the CUSA capital space is causing us to be a bit cautious in Q3.

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Matthew Stephan Miksic, Crédit Suisse AG, Research Division - Senior Research Analyst [5]

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Fair enough. And then just one follow-up if I could on sort of the regenerative medicine and value-based strategies that you've taken in approaching kind of wound care and outpatient wound care in particular. Any clinical data, any progress that you're gaining traction on that front or any notable dynamics in those end markets that you call out?

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Peter J. Arduini, Integra LifeSciences Holdings Corporation - President, CEO & Director [6]

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Well, for competitive reasons, I wouldn't give real specific examples. But in short, yes. I would say, both with good dialogue with CMS, about how the whole model is working for us and other folks. And then with individual IDNs that have their own insurance programs, I think we've been able to have some very good dialogues about those discussions that we've had with investors and analysts over the past few years about products that can actually heal someone and fewer applications and lower costs and how that may relate to the reimbursement structure. I think we're starting to get more receptivity to that. We're starting to see a pickup in some of those products, but that component of value, particularly in outpatient is something that we're focused on, and feel very confident that, again, over the long run, we're going to start seeing more pick up related to a product that heals faster at a lower cost.

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Operator [7]

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(Operator Instructions) We'll go to our next question from Robbie Marcus with JPMorgan.

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Robert Justin Marcus, JP Morgan Chase & Co, Research Division - Analyst [8]

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Congrats on a good quarter. I wanted to ask maybe you could just give us an update. It's now been over a year since you restructured and grew the sales forces. Maybe just catch us up on where we are in terms of the progress, the status versus your internal expectations. And any kind of qualitative trends or improvements you can give for each of the sales forces and how they're working out versus expectations?

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Glenn G. Coleman, Integra LifeSciences Holdings Corporation - COO & Corporate VP of International [9]

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It's Glenn, I'll take a crack at this one. If I look at the different sales forces, starting with CSS. Clearly, we saw stability really right after we closed the Codman deal, and so we've continued to see more and more progress with cross-selling synergies, which is a big area of opportunity for us and some of the value we sell with the Codman deal, both in the U.S. and outside the U.S. I would say outside the U.S., it took us a bit longer but now we're starting to bear the fruits of some of those cross-selling efforts that you saw here in the second quarter. In CSS, we put up 9% organic growth. So doing really well there. So I would say, all in all, the seats are filled, the channel is very stable, capitalizing our cross-selling synergies especially now outside the U.S. and we've got a whole bunch of new product launches we're going to be putting through these channels. So I feel really good about that. The key thing around the CSS channel going forward is going to be adding more specialists. So a good example of that would be in the neurocritical care space. I mentioned that in some of my prepared remarks. We're going to be adding more specialty there. And when you look outside the U.S., we're going to be adding more commercial resources in places like Japan where we have a lot of new products that we're just launching there as well. So I feel really good around the channel. And you're seeing that come through in the results overall for the segment. We grew in the quarter over 6%.

On the OTT side, as we've talked about at the beginning of 2018 and doing the channel split, I think in the beginning, we saw a really good stability on our regenerative side on the inpatient side but it took us longer to ramp the channel on the orthopedic side. As we got into 2019, obviously we saw more stability. We filled most of those roles and so our progress in the actual business performance. And I'd say, right on plan for orthopedics for the first half of this year, seeing growth for the first time in a number of years. And again, a lot of that coming out of our ankle and shoulder portfolio. But all in all, we feel really good about where we are with the channel there as well. So both sides, I would say, are stable, progressing well and driving resources where we see growth opportunities. And Pete, if you want to add anything to that.

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Peter J. Arduini, Integra LifeSciences Holdings Corporation - President, CEO & Director [10]

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Yes. I think you covered it. I think just the other pie charts there. Our turnover in our field force is probably at the lowest it's been in the last 3 years, which is a good sign relative to -- we chose the right folks, people feeling good about their opportunities. And to Glenn's point, although we've kind of filled all the seats, there's clearly selective opportunities to add as we add specialists to support some of these new launches or some of the new market areas. So I had mentioned plastic and reconstructive surgery moving into the breast reconstruction space, particularly outside the United States. The opportunity that we'll lend down the road in the U.S. We've got some pretty good things set up, and we're quite happy with the changes that we needed to make in the channels and I think the fruit that will bear here in the coming years.

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Glenn G. Coleman, Integra LifeSciences Holdings Corporation - COO & Corporate VP of International [11]

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And clearly, we're seeing an increase in the productivity levels of the individuals, especially on the OTT side. And you're seeing that really reflected in some of the EBITDA margin expansion. So we had one of the best quarters in probably 3 or 4 years in the EBITDA margins. We're getting leverage on the selling and marketing line as well because our reps are becoming more productive that will be better on their role for a while and are growing sales in each of those channels.

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Robert Justin Marcus, JP Morgan Chase & Co, Research Division - Analyst [12]

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Great. And then quick financial question. You raised EPS guidance, you kept free cash flow guidance the same, but the free cash flow came in a little lower than at least we were expecting. Maybe just talk about some of the puts and takes over the balance of the year and your confidence in the free cash flow guidance.

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Glenn G. Coleman, Integra LifeSciences Holdings Corporation - COO & Corporate VP of International [13]

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Yes. I would say, on the free cash flow side, one of the things that we're working through is a lot of these new product launches. So we're seeing higher inventory levels as we build inventory in support of those product launches. So that's one of the drivers. That will get better in the back half of the year. And then in addition, we're going through some legal manufacturing changes with Codman. And as you do that, you have to build inventory as you go through the regulatory approval process. So that's what you're seeing in the first half of the year. Clearly, we expect better performance in the back half between increased profitability, some improvements in working capital and lower onetime charges that are cash-related relative to the Codman integration. So you should expect to see better performance for sure in the back half of the year. But from our perspective, we're pretty much on plan on most metrics or a little behind on inventory, but again, that's a timing issue.

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Operator [14]

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We'll go next to Ryan Zimmerman of BTIG.

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Ryan Benjamin Zimmerman, BTIG, LLC, Research Division - Director & Medical Technology Analyst [15]

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Carrie, congrats on the new role; Glenn, congrats on the promotion; and everyone, for the strong quarter. I just want to follow up on the question Matt had asked earlier on wound. He called out a couple of things, but maybe just help us understand maybe what's occurring in strength in wound? Is that driven by potentially some newer accounts? Is that deeper penetration? Are you seeing continued disruption competitively? Maybe just help us understand what the dynamics are on wound. And then I will follow up on gross margin.

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Peter J. Arduini, Integra LifeSciences Holdings Corporation - President, CEO & Director [16]

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Yes. I think, Ryan, it's a little bit of all of the above. I think it's a combination of we have a stable channel now, we've been able to be able to kind of develop that crew. That's where it starts, and they had a very nice quarter. We have been able to open up some new accounts. Some of that is the conversion of the Healogics business and getting into new accounts there. We've also had some good results in the VA. So a combination of opening some new accounts, getting deeper into existing accounts for sure. And so we had very strong growth within our matrices products -- PriMatrix.

Our amnio products all did well, Omnigraft as well doing -- so all those did well. And then as you know, in that portfolio, we had some slower growth products that are typically high single-digit growers such as the cast or even MEDIHONEY and that acceptance of those products being used to drive compliance or using products like MEDIHONEY more broadly in other wounds that aren't as acute is definitely starting to pick up. So when you pull all those together, really, probably put up the best quarter we've seen in some time, and I think it's not a onetime event. We feel pretty confident that we're starting to kind of get the right tailwind in outpatient wound care. There is some disruption in the market, but like most things, there's a lot of strong players out there. There's a lot of good things going on. I think this is just as people really start to understand our broader portfolio, we can be more of a one-stop shop, and we're starting to pick up more accounts because of that and our ability to contract.

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Ryan Benjamin Zimmerman, BTIG, LLC, Research Division - Director & Medical Technology Analyst [17]

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Helpful. And then gross margins. A little bit lower than last quarter and with wound as strong as it was in the quarter, Glenn, was that a result of private label or the strength you saw on private label impacting the second quarter gross margin? Or is that something else to call out?

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Glenn G. Coleman, Integra LifeSciences Holdings Corporation - COO & Corporate VP of International [18]

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No. I think that's a good question and you're pretty much spot on. It's really mixed. So if you look at where the growth came from in the quarter, private label obviously is a big driver of that, that has lower gross margins, but higher EBITDA margins. So that helped our EBITDA margin story but obviously impact the gross margins. Also the strength in both our instruments business, which carries lower gross margins and our international business were the drivers. So those 3 areas in general carry lower gross margins than the corporate average and brought the overall gross margin down slightly. In addition, we're making some investments in our regenerative plants to build out increased capacity. So that's also impacting both Q2 and what we expect to see in the back half of the year to get to our full year guidance.

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Operator [19]

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We'll go next to Steven Lichtman with Oppenheimer & Co.

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Steven Michael Lichtman, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [20]

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Congrats, everyone. So I guess first, Glenn, you just mentioned on the manufacturing expansion in regen, can you just update us on where you're at with that? And once it's complete, what it's going to allow you guys to do?

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Glenn G. Coleman, Integra LifeSciences Holdings Corporation - COO & Corporate VP of International [21]

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Yes, so we're really talking about several of our regenerative plants, one in Memphis, Boston and here in Plainsboro. So in Memphis, as you know, it's where we make our amniotic tissue product, a huge area of growth for us, a huge potential area of further growth in the future. So we're increasing capacity in that plant. And just depending on context, we probably doubled capacity since the beginning of the year, and we expect to have 4x the capacity by the end of this year. And so what we're doing is we're adding shifts, increasing raw material supply of placentas and adding clean rooms to that facility to increase the capacity there. But I would expect, it's going to take us still another 6 months in investments to get us to where we want to be.

In Boston, obviously working through plans there as well. SurgiMend is made up there along with PriMatrix. These are very fast-growing areas as well and so it's a relatively small plant, and we're looking at ways to build out the increased capacity and change some of the process steps there to drive more product to the field, which will drive more growth down the road. And then here in Plainsboro, obviously we're continuing to work on adding increased capacity here as well by adding more (inaudible) as an example. So all in all, lots going on, and we're really making these investments to support what we believe will be very fast-growing areas for us over the next 5 years.

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Steven Michael Lichtman, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [22]

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Got it. And then just one on CSS. So you talked about getting close to the end of the integration and things are stable and starting to turn. Can you now talk about some of the synergies you're expecting to see from Codman, whether cross-selling or some of the enterprise selling that you talked about sort of as we transition into -- from the integration?

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Peter J. Arduini, Integra LifeSciences Holdings Corporation - President, CEO & Director [23]

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Yes. Steve, so it's a good point. Relative to Codman and what's done now for the business, we clearly have a #1 position. We've got the size and scale, really, in all markets around the world that we compete to be able to have a seat at the table for favorable contracting discussions or such. So we're seeing the benefit of that. And the first benefit comes, you have an account, we sell 30 products in neuro in that account. There's only 20. You have an opportunity to talk about the other 10 and find ways to bring that in. We're starting to see some of that happen across the globe. So I think that's point 1.

Point 2 is with the new product launches, I'd just give a big shout out to our R&D team has done a tremendous job with the products, partnering with our marketing team to really build the right health economics wrapper around this, and we're just really starting to see in a lot of places, such as like our hydrocephalus valves, in the monitors, people are really taking a look and saying, "I wasn't necessarily thinking about changing but you built such a strong case here why I may want to competitively convert. Or why I may want to upgrade my technology now because of the features you brought, the productivity you brought, the ease-of-use you brought or my long-term savings as a user." We're starting to see that change. And obviously, when you bring a product and a program that's innovative, it makes someone stop, sometimes go, "Hmm, maybe I should look at everything else and think about it." And I think that's what's going on right now.

And to Glenn's point, it took us a little bit longer OUS, but we're seeing a very similar thing and that -- neat part about neurosurgery is it's actually a small homogenous community around the world. And a procedure that gets done at the Mayo Clinic or gets done at some other institution around the world, they all know about it pretty quickly because it's a small community. So if you can play that leadership role and drive change, you can effect change around the world pretty quickly. And we're starting to see the early signs that that's possible. So we're feeling pretty good about that uptake and in our ability to kind of use the scale to expand our footprint.

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Operator [24]

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We'll take our next question from Matt O'Brien of Piper Jaffray.

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Matthew Oliver O'Brien, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [25]

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So I think that everybody's looking at the Q3 guidance and maybe a little bit light versus where people were expecting. And you kind of talked a little bit, Pete and Glenn, about the reasons there. And I'm curious though, there's a couple of competitors, bigger consolidator that's bought a product, EnDura, and then a new competitor to CUSA that's rolling out right now. How much of those dynamics have you incorporated into the Q3 and Q4 guidance specifically?

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Peter J. Arduini, Integra LifeSciences Holdings Corporation - President, CEO & Director [26]

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So I believe, we've covered all those in our guidance. I mean we've taken a look at a couple of other aspirator competitors. I would argue that when we've done the bottoms up comparison, hands down, we have a better product that performs very well. But the fact is, customers are going to look. They respect those other players. They're going to want to take their time to kick the tires, so to speak. And so when I talk about longer sales cycle, we believe we're still going to win more times than not. And so that's all factored in. But our sales cycle, when you're the only one with the new one might be 60 days. Sales cycle, when you got to look at 2 other players maybe 120 days. So that's factored in.

On the dural sealant side of things, we've been competing since the first quarter, with the new ownership. I think both of this are obviously talking the story, which is half the users still don't use a respective dural sealant. They may be using something like fiber or nothing at all other than basically suturing. And so at this point in time, I think both are continuing to grow. We have tempered the amount of growth in our plants this year, and I think as you think about Q3, we want to get another quarter behind us before we would talk about any other acceleration in those 2 categories. But for sure, we built that, I'd say, cautiousness into our plans until we get a couple of quarters behind us and really see those products rolled out. In the case of some of the tissue replacement products, most of those from the competitors aren't shipping at this point in time.

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Matthew Oliver O'Brien, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [27]

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Got it. That's very helpful. And then second follow-up question is on DuraGen in Japan. You mentioned you did your first case there. It's a big growth driver for you guys. How aggressive are you going to be with that roll out there? And how do we think about modeling that product for '19 and '20?

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Glenn G. Coleman, Integra LifeSciences Holdings Corporation - COO & Corporate VP of International [28]

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It's clearly the biggest opportunity from a new product launch perspective or from new product registration, I should say, perspective outside the U.S. in 2020. Part of our thinking is we're going to be adding more resources to support DuraGen, to support the CUSA Clarity launch that we just did there. So I would just say we're not going to give any specific numbers, but again, just keep in mind, we still have to get through the TSA exit here in August. Once we do that, while more people focused on selling, if you will, but I don't want to give a specific number for it but you can look for us where we're talking about very strong growth coming out of Japan in 2020 as a result of these new product launches including DuraGen. And just keep in mind for us, Japan as a market size, I think you can think of it as a $40 million to $50 million type market today.

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Operator [29]

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We'll go next to Craig Bijou with Cantor Fitzgerald.

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Craig William Bijou, Cantor Fitzgerald & Co., Research Division - Research Analyst [30]

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I just have a couple on some of the comments that, Pete, you made. Let me start with you're looking at external opportunities in the second half. And obviously, I know you guys have been an inquisitive company and now that it seems that Codman integration is winding down. Just wanted to kind of hear your renewed thoughts given the callout in the script on what you may be looking for in external opportunities, whether it's Codman side of the business, OTT and maybe size profile?

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Peter J. Arduini, Integra LifeSciences Holdings Corporation - President, CEO & Director [31]

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Yes, Craig. Look, thanks for the question. So a big part is, to your point, we've obviously done a lot with the company of building it with smart acquisitions, typically, tuck-in. Codman was kind of the oddball relative to overall scale. And I would say, again, is it part of what our strategy is, is to look for Codman as deals. The majority of our focus is really on tuck-ins. And the area that we're looking at is really how we find key components that continues to build this relevant scale point. Take select parts of our business and move this into maybe #4 position even in a subcategory into a #1 or a #2. And again the focus on this as more consolidation takes place in all of our customers, on the payers, we want to be -- even though we may not be as large as some of our biggest competitors, we want to be very large in those segments we compete. So think about us playing into and buying technologies as well as operating companies help build out that portfolio. That actually then brings a better answer to a productivity solution for the customer and therapeutic.

I would say, with our scale particularly in the regenerative side as well as in CSS, we do have the opportunity to take some technologies into the house, so to speak, it solves some of the bigger issues in our segment that haven't been addressed before, and we're looking at things like that, what causes some of the major issues for a neurosurgeon, what causes complications for a patient that if we could do these things, we could kind of change the trajectory some to differentiate that treatment for a patient and kind of lay out how Integra proceeds. So I'd say, on both sides of the house, we're looking at those. In the TT area, there is some new neighbor, new green space areas whether it be how we think about breast reconstruction and leveraging the products that we have and potentially other technologies or products that could help fill out a bag on a clinical area that can make us a one-stop shop. So that's kind of the feel for the things we're looking at, and we're obviously conscious of what valuations and things look like. So between private as well as public opportunities, we're scanning the area wide. And as you know, in my capacity as CEO and now with Glenn and Carrie on board, I plan on spending a lot more time here and particularly the farming aspect of really kind of getting out and taking a hard look at the landscape. I would say I wouldn't expect that you'd see a flurry of deals anytime soon, but we've got a really good pipeline on both sides of the house and you know how this plays out. They start coming in at different times based on how it's playing together. But I would say we've got a nice pipeline. And now that we've got the integrations fundamentally completed, our capacity to bring in other deals, I think, is going to increase.

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Craig William Bijou, Cantor Fitzgerald & Co., Research Division - Research Analyst [32]

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Great. Very helpful color, Pete. And on your comment on organic growth accelerating in 2020, and I know you guys have touched on a couple of the potential growth drivers. But I wanted to ask maybe more directly, and when you look at the OTT business and the Codman business, how do you see the acceleration playing out for the overall company whether it's OTT accelerating, Codman? And then if there's any color, general color, I know you're not probably going to provide specifics, but any general color on some of the subsegment drivers within each of those business for 2020?

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Glenn G. Coleman, Integra LifeSciences Holdings Corporation - COO & Corporate VP of International [33]

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Thanks, Craig. I would say a couple of things. Overall, before I talk about segments, and we're not going to give too much color at this point given where we are in the year. But while we're confident in faster growth in 2020 is a combination of a couple of factors. First, having a full year impact of new product launches, which impacts both segments. So we've got a base laundry list of CSS products we're rolling out. Same thing on the orthopedic side of the house. And so that will be a nice contributor to faster growth in 2020. Will we pass the Codman integration? And that would be nice to say as we get past the third quarter here. So not having the disruption that we saw in the first quarter of 2019 and having more stable business outside the U.S. going into 2020 should be a positive for us. It works like orthopedic is expecting faster growth then we got more focused channel with these new product launches, private label, a lot of our private label partners, I would say, are seeing good end market growth, which will benefit us. And just the fact we're going to be adding more resources like I mentioned earlier. So from the neurocritical area, adding specialists there, Japan as an example. And so I would just say those are the factors that give us confidence we're going to see faster growth next year. And I would expect growth to be in both segments. But at this point, we're not going to give any further color on guidance for 2020.

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Operator [34]

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We'll go next to Jayson Bedford with Raymond James.

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Jayson Tyler Bedford, Raymond James & Associates, Inc., Research Division - Senior Medical Supplies and Devices Analyst [35]

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So I jumped on the call a little late, so I apologize if these questions have been asked but just a few here. I wanted to ask about wound care, plastic recon. Just for clarity, is the inpatient, outpatient mix in wound care still roughly 2/3 inpatient, 1/3 outpatient? And then second, the double-digit growth in outpatient wound care, is that level sustainable going forward? Meaning double digits?

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Peter J. Arduini, Integra LifeSciences Holdings Corporation - President, CEO & Director [36]

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So Jayson, I think your split is in the ballpark. I mean traditionally, it's been -- it's even slightly a little bit more inpatient, but we're moving in that direction. And as far as the growth, I think, relative to the overall mix of all the products, we think that the MEDIHONEY and the contact cast are probably not consistent double-digit growth. Those are probably high single. But relative to the strong performance in the matrices and double-digit growth, yes, we think that we see future quarters here that will hold that growth rate and some quarters where we'd be able to accelerate beyond that.

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Glenn G. Coleman, Integra LifeSciences Holdings Corporation - COO & Corporate VP of International [37]

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So but I think we're really think we're seeing the growth portfolio play out for us and our strategy of taking pace from the time they walk into the clinic till the time they are healed. Having products serving from the protect side when they walk in to treating, as Pete mentioned, to preparing the wound bag. We really have a good strategy around the whole patient care in the space. And as Pete mentioned, we'll see growth probably in each of the different 3 buckets there, but faster growth really on treat side.

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Jayson Tyler Bedford, Raymond James & Associates, Inc., Research Division - Senior Medical Supplies and Devices Analyst [38]

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Okay. I wanted to ask about extremities that were basically flat year-over-year. You reiterated that the growth expectation for OTT, but it seems like wound care and private label are tracking better than expected. So I guess the question is what is the expectation for extremity growth in the second half of 19?

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Glenn G. Coleman, Integra LifeSciences Holdings Corporation - COO & Corporate VP of International [39]

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So we're expecting to see mid-single-digit growth for the back half of the year.

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Peter J. Arduini, Integra LifeSciences Holdings Corporation - President, CEO & Director [40]

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For orthopedics.

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Glenn G. Coleman, Integra LifeSciences Holdings Corporation - COO & Corporate VP of International [41]

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For orthopedics. And again, that's largely driven by ankle and shoulder, which are the growth parts of the portfolio. And we mentioned, we did see a sequential improvement in the lower fixation area as well. It's still not growing but it's an improvement with what we've done over the last few quarters. But all in all, we feel quite good around the new product launches and our new revision ankle. Some of the new products we rolled out in shoulder like our small post base plate. We've also got a really nice pipeline coming with short stem and a stemless shoulder. But I would say, relative to the second half of the year, mid-single-digit growth is what we're modeling.

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Operator [42]

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We'll go next to Larry Biegelsen at Wells Fargo.

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Shagun Singh Chadha, Wells Fargo Securities, LLC, Research Division - Associate Analyst [43]

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This is Shagun on for Larry. Pete, thank you for the color on 2020. If I could just follow up? I was just wondering that your guidance kind of implies that you would exit Q4 at about 6% growth. Is that how we should think about 2020? And then I also wanted to ask about recent management changes. Why was this the right time? And Pete, you talked about your focus on future growth, how should we think about that? Relative to your LRP, you also talked about a focus on M&A. And I was just wondering do you need M&A to drive growth to the high end of your 5% to 7% long-term growth outlook?

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Peter J. Arduini, Integra LifeSciences Holdings Corporation - President, CEO & Director [44]

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Thanks for the questions. I would say, we're not going to give any more color on 2020. I think your math plays out correct on how the year would play out, but we'll get more detail other than Glenn spoke to already, as we get into our February call when we traditionally do it. But we feel pretty good about how we're positioned. Obviously, having a strong Q2 reduces the ramp, which we know investors had concerns about, and we're well positioned here now in the second half of the year for all the previous discussions we made. Relative to the organization change, why it was the right time to do it right now is we are at a size where we've doubled the size of the company really over the last 8 years. We've got some large platforms. We are a diversified company in the midcap space. So there is a lot of things going on. And so the opportunity to have -- bring someone in with Carrie's background, world-class capabilities to help take the finance group to the next level.

Glenn, you got a lot of exposure too has really learned this business. And again, over the last few years, he's not just been the CFO, but has run, all the rest of the world outside the United States and demonstrated his ability do that very well. Obviously, second quarter results are a nice sign of what him and Mike have been able to put up. But we think we've got a lot of opportunity in front of us. And a lot of that opportunity is about spending more time thinking about where we should go, how we should build out sublinks to this tool, how should we actually get deeper in certain clinical areas, some of them touched on therapeutic beds that need more time and focus. And so that's going to allow me in the CEO role to spend the time on that and help develop out some of these pieces when you're doing both sides of it and you get a lot of change on with the portfolio management, the fact is some of the strategy time sacrifices, so that gets resolved. And then Glenn, being able to focus on the day to day, and in particular, our consistency on our execution quarter by quarter and so our hope here is that we get the best of both worlds as far as being able to build out our longer-term growth strategy as well as being able to consistently improve our execution.

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Operator [45]

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We'll move next to Travis Steed of Bank of America.

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Travis Lee Steed, BofA Merrill Lynch, Research Division - VP [46]

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Congrats in a good quarter, and welcome, Carrie. I look forward working with you. I just wanted to ask I know prior, you talked about kind of 6% revenue growth in the back half. Now with the better quarter in Q2 you only need 5% and some in the private label may not repeat but it seems like some of the new products were off to a really good start. So I just wanted to hear your thoughts on how realistic you think the 6% growth could still be in the back half? And any reason why the new products would contribute more in Q3 and Q4 versus what they did in Q2?

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Glenn G. Coleman, Integra LifeSciences Holdings Corporation - COO & Corporate VP of International [47]

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Yes. So keep in mind, part of the second quarter was timing-related. These are really 2 areas. One is the new product area. The other is private label, which we talked about. We put some color around the new product, though, a lot of this is done by early adopters. And what we mean by that is these are customers that are very familiar with the space. They will buy the product on-site without doing a lot of trialing and know it pretty well. And so we had some pent-up demand that was filling the first 6 months of the year, and we're expecting to get supply in mid-July. We got it about a month sooner. And so we're able to ship out that initial pent-up demand, if you will, in the second quarter. So that was a big part of it in terms of timing. Now you can have a little bit of a lull because you've got to go through the normal selling cycle, which includes trialing, which will take us in a 90 to 120 days to close a sale. So that's why you don't see this continued ramp. We kind of have a full ahead or a timing-related item relative to the early adopters.

And so for the full year, I'd just say, our best estimate right now is we're going to do just above 5% in the back half of the year, combination of the timing item that we just talked about. But also the expanded cycle around the capital area that Pete mentioned, some caution just around expectations in Japan, actually, in the TSA, caution around some Day 2 expectations. And so we're being, I think, prudently cautious on a number of items. And if some of these can be mitigated, but there could be some upside, to your point. But right now, our best view is we'll do just above 5% in the back half of the year. The good news is we've derisked the year. We almost did 5% in the first half, expected to do a little bit above 5% in the back half. And so I think a lot of the concern is just around the ramp should be alleviated with the first half performance.

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Travis Lee Steed, BofA Merrill Lynch, Research Division - VP [48]

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And it sounds like a lot of the upside from the new products is really around the ICT monitor. So maybe talk about the pipeline there in terms of orders that you have, how much of that pipeline -- or how much of your order book you worked through already and interest in competitive accounts, and longer term, I'm not sure how you think about 1% of the installed base you can convert in the first year, typically, is that 10% or 20%?

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Peter J. Arduini, Integra LifeSciences Holdings Corporation - President, CEO & Director [49]

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Yes. You could do this as a multiyear cycle in terms of growth that we've expect out of the ICT monitoring space. We're building the pipeline. We see this as a nice opportunity. As you remember, back when we did the Codman acquisition, we divested our ICT monitor because we knew this was going to be coming out of development. We thought it was a much better monitor than the previous monitor that we were selling. It gives us advanced data presentation, gives clinicians a way to manipulate and evaluate data to make better decisions in the neurocritical care suite. It's got a great microsensor and very intuitive. So I think all in all, we feel really good about it. We're hearing great receptivity about it. We'll be adding more commercial resources behind it. But right now, we're just building the funnel. We're building the ramp. And as I mentioned earlier, we had some pent-up demand from the early adopters. But now, we're building the pipeline, which will take us some time, we'll see some more growth in the back half of the year. We're counting on over 1.5 coming from new products in the back half of the year. CereLink is a big part of that. I don't think we're going to comment any further than what I just said relative to the ramp.

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Operator [50]

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We'll go next to Raj Denhoy at Jefferies.

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Rajbir Singh Denhoy, Jefferies LLC, Research Division - MD, Equity Research & Senior Equity Research Analyst [51]

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I apologize for missing the question earlier. A lot has been asked, but I really just kind of want to ask a higher-level question about the strategy kind of long term. So much has been -- or so much of your longer-term plan seem driven on acceleration rate in OTT. In the last quarter, we saw some good results. This quarter, it seems TT and orthopedics have stepped down a little bit. But you're seeing very good results still out of Codman, right? And I think you've even raised the guidance there a little bit. And so the question is really as you think about the complexion of the business over the next several quarters and years really, is it the right focus to expect an improvement in OTT? Or is it really should more emphasis be put on what Codman it can ultimately do given everything you've described around the scale of that business and the competitive landscape.

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Peter J. Arduini, Integra LifeSciences Holdings Corporation - President, CEO & Director [52]

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Raj, thanks for the question. Look, it's a really important question and one that as we do an Investor Day at some point here in the future obviously this will be kind of the core of it. Clearly, with Codman, we do have this capability and we now have the scale that not only can we add tuck-in acquisitions in the United States that add value, we now have this global scale. One of the big priorities that we had when we bought Codman to add things that have an impact in markets around the world. So totally agree.

On the OTT side of the shop, though, I would say first of all, on orthopedics, as Glenn just previously commented on, we're actually in a really good position here with a very strong ankle and shoulder portfolio. And finally, a stable, very strong, dedicated sales force. So I think, yes, you should expect to see that accelerate, but probably be smaller tuck-in type plays or specifically organic developed products. When we think about the work that we've done with the CFO relationships and stuff, those are the kind of deals that I think will help build that out, but we've got all the right pieces in place there.

On the TT side, we are the leader in broader inpatient and outpatient combined wound reconstruction. I think we're just starting to get the right traction here on outpatient, but I'm very excited about our future opportunity in nerve and where we might be able to go with that. Our opportunity in plastic and reconstructive, which is breast reconstruction, ab wall and building that out. And so we are actually starting to see some of those benefits. It's early. But I think you could expect to see us between organic and inorganic investments focus on those areas.

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Rajbir Singh Denhoy, Jefferies LLC, Research Division - MD, Equity Research & Senior Equity Research Analyst [53]

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That's helpful. And maybe I could also just ask about the nerve as kind of the second question though. You mentioned that product and particularly that product line in particular, are there any updated thoughts on your product launches there? And I know kind of as the core to its progression, you made some comments in various forums about that. What's your current thought around the portfolio in nerve and your ability to kind of expand what you have there?

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Peter J. Arduini, Integra LifeSciences Holdings Corporation - President, CEO & Director [54]

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I would say that it's an area of interest for us. We're one of the earlier pioneers within the area. I would say that we had lost focus over the last few years. We've regained that focus. This is really a building year. We have some new products that we plan to bring out in 2020, one that we talked about specifically is this neuro 3D product, which is a conduit that actually has an inner core that we believe will help deliver better reach -- recovery of the nerves. And then some other products that we'll be working on to fill out that pipeline, but I would say at this point in time, it's still a very small component of our business, but we think about the technologies and the channels that we have, we clearly believe that we can be one of the leaders in the space. And as you know, it's not -- it's a significantly crowded space. So I would say I think there's room for plenty of folks to grow as this business continues to grow. But I'd say look to hear more about what we're thinking about nerve in 2020.

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Operator [55]

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And that does conclude the question-and-answer session and today's conference. We thank you for your participation. You may now disconnect.