Integra LifeSciences Holdings Corporation

Good day and thank you for standing by. Welcome to the Integra Life Sciences Second Quarter 2023 Financial Results. And now I would like to turn the call over to Chris Ward, Sr., Director, Investor Relations. Please go ahead.

Thank you, Lisa. Good morning and thank you for joining the Integra Life Sciences Second Quarter 2023 Earnings Conference Call. Joining me on the call this morning are Jan DeWitt, President and Chief Executive Officer, Leah Knight, Chief Financial Officer, and Matthew Ossemeyer, Vice President of Corporate FP&A, Investor Relations, and Treasurer. Yesterday evening, we issued a press release announcing our second quarter 2023 financial results. The release and corresponding earnings presentation, which we will reference during the call, are available at integralife.com under Investors, Events and Presentations, and a file named Second Quarter 2023 Earnings Before we begin, I would like to remind you that many of the statements made during this call may be considered forward-looking statements. Factors that could cause actual results to differ materially are disclosed in the company's Exchange Act reports filed with the SEC and in the release. Also in our prepared remarks, we will reference both reported and organic revenue growth. Organic revenue growth excludes the effects of foreign currency, acquisitions, divestitures, as well as discontinued products. 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 any non-GAAP financial measures can be found in today's press release, which is an exhibit to Integra's current report form 8K, filed yesterday with the SEC. And with that, I will now turn the call over to Jan.

Thank you, Chris, and good morning, everyone. When we announced the recall of products from our Boston facility in late May, we committed to sharing the timeline for resuming production in Boston during this earnings call. I appreciate that this is top of mind for our investors and analysts as it is for me and our leadership team. So I would like to address this first before going into the broader business update. So let's turn to slide four. As many of you are aware, we initiated after consultation with the FDA a voluntary global recall of all products manufactured in our Boston facility. This was based on our identification of gaps in our endotoxin testing process, which may have resulted in the release of products with higher levels of endotoxin than permitted by the product specifications. Recall included our Primatrix, Surgiment, Revise, and TissueMent products. We also extended the previously implemented manufacturing pause in Boston, additional detection and quality controls that we found to be necessary in light of both recent FDA inspection results and findings from prior internal and external audits. It is important to point out that we have no specific indications of any product complaints related to high endotoxin levels. Patient safety is non-negotiable for us, and we apply an abundance of caution in making tough decisions like the ones we have made over the past few months. We continue to work closely with the FDA. In June, we submitted an initial response to the audit findings from the Boston inspection that they concluded in May. And we have merged these new actions with the existing work plan into a comprehensive plan that we believe fully and effectively addresses quality system gaps in our Boston operations. Also, over the past months, we have strengthened our leadership and project management capabilities in the Boston operations with investments in additional internal resources and outside subject matter experts. As part of our remediation plan, we are also bringing in a third-party auditor who will attest to our progress at key milestones over the course of the project. Based on this project plan, expect to resume manufacturing by the end of the fourth quarter this year considering cycle time for moving from raw materials to finished goods in the factory the need to build inventory and the plan to complete a final audit by our outside experts we expect to initiate a commercial relaunch by the mid to late second quarter 2024. This planning is consistent with what the FDA expects, pursuant to the warning letter we received last week. We plan to continue working closely with the FDA and provide them with regular updates on our progress. We will also submit to the FDA the final audit report from our outside expert by or before March 31st, 2024, as the warning letter requires. Turning to the right side of the slide, The impact on our financial results for the second quarter was significant, but in line with the estimates we provided in our revised guidance in May. In the second quarter, we saw a negative impact of approximately $23 million from lost revenues and returns, and a negative impact to adjusted EPS of roughly 20 cents associated with the recall. In May, we provided a range of impacts for 2023, And in our updated guidance, you will see that full year negative impact of approximately $60 million in revenues and 35 cents for adjusted EPS. Although we are not providing guidance for 2024 at this time, the manufacturing restart timing and the time required to ramp up inventory and sales will create a headwind for 2024. We estimate the net impact of the Boston return to market timing and our offsetting actions to negatively impact the 2024 projections implied in the long-range plan which we presented during our May 4th investor day. We estimate this negative impact to be around $50 million in revenue and around $0.30 in adjusted EPS. I want to assure our customers and investors that we are highly focused on our remediation efforts and we fully expect to complete the remediation, and return these critical technologies to the market for our customers and their patients. So with that backdrop, let's now turn to slide five to review our second quarter business highlights. Our second quarter revenue decreased by 2.7% on an organic basis, mainly reflecting the impact of the Boston recall and production halts. However, the second quarter also reflects the strength of our markets and strong demand for our technologies across a diverse portfolio of leading products and brands, which, as you can see on the right-hand side of the page, resulted in total revenue above the high end of the revised guidance we provided in May. Excluding products manufactured in Boston, our portfolio landed at solid organic growth of 5.5%. In our CSS business, growth was driven by key products like CUSA, Mayfield, Duragen, Certus+, programmable valves, back-to-ceil catheters, and instruments, several of which delivered double-digit growth in the quarter. In our tissue technologies business, we saw double-digit growth in key product lines like Micromatrix, Satile, Nerve Products, and MediHoney. We also enjoyed strong international growth of above 7%, led by double-digit growth for CSS in China and high single-digit growth in Canada. Now turning to our bottom line. Our second quarter adjusted earnings per share came in at 71 cents. 20 cents headwind from the Boston recall offset otherwise strong profitability, while the rest of our portfolio drove adjusted EPS above the high end of our revised times range. As we look beyond our second quarter revenue results and back to the left side of the page, we're delivering several positive proof points along our path to the growth commitments we laid out during our investing. We continue to advance our portfolio strategy in the implant-based breast reconstruction market, and we're excited to announce that we have filed the amendment to the clinical section of our PMA application for surgiment. The integration of our recent C acquisition is well on track, and our team completed enrollment for the Durosorb PMA clinical trial. These clinical developments bring us a step closer to having the first and second PMA products in this clinically important and high-growth market. Moving to Cellulink, we've made significant progress toward bringing Cellulink back to market. We've completed the technical fix in our finalizing testing and preparing our filing with the FDA, which we intend to make by the end of August. We expect to relaunch the CERELINK monitors late in the third quarter of this year in international markets and late in the fourth quarter in the U.S. We remain excited about CERELINK, a differentiated technology in ICP monitoring and an important catalyst to our long-term growth commitments. We also have expanded the international reach of our CUSA and DuraGen portfolios, and we bolstered the clinical evidence for our back-to-field calendars in the European market. further illustrating our opportunities to bring our leading technologies and brands to new international markets. Also in the second quarter, we opened our new Innovation and Learning Center in Plainsboro, New Jersey, dedicated to our founder, the late Dr. Richard Caruso, highlighting our investments in research, development, and clinical education in regenerative technologies. And last, but certainly not least, we appointed Leah Knight as Integra's new CFO at the end of June. Leah will take us through further details on the financials, our updated guidance, and the plan share and purchase. Before going there, let's move to slide six to officially introduce Leah and welcome her to Integra. Leah comes to us with more than 30 years of experience in global companies with significant operating scale and complexity. Apart from bringing that right mix of operational depth and strategic breadth, that we were aiming for during the search, Leah also has a great reputation for leading and developing high-performing teams and a track record of delivering strong business outcomes across the organizations she supports. We're excited to have Leah on board and look forward to her leadership and contributions to Integra's future. Before I turn the call over to Leah, I'd like to take this time to acknowledge the contributions and leadership of the finance team led by Jeff Mosbrook and Matthew Wassermeyer. Jeff and Matthew have been great partners to me and our leadership team over the past months and have demonstrated resilience, diligence, and financial rigor during the CFO transition period. With that, I would like to turn the call over to Leah.