Integra LifeSciences Holdings Corporation

Good day. Thank you for standing by. Welcome to Integral Life Sciences' third quarter 2024 financial results conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automatic message advising your hand is raised. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, Chris Ward, Senior Director of Investor Relations. Please go ahead.

Good morning, and thank you for joining the Integral Life Sciences Third Quarter 2024 Earnings Conference Call. With me on the call are Stuart Essek, Executive Chairman, Jan DeWitt, President and Chief Executive Officer, and Leah Knight, Chief Financial Officer. Earlier this morning, we issued a press release announcing our Third Quarter 2024 financial results. The release and corresponding earnings presentation, which will be referenced during the call, are available at Integralife.com under Investor Events and Presentations in a file named Third Quarter 2024 Earnings Call Presentations. Before we begin, I would like to remind you that many of the statements made during this call may be considered forward-looking. Factors that could cause actual results to differ materially are discussed in the company's Exchange Act report filed with the SEC and in the release. Also in our prepared remarks, we will reference reported and organic revenue and organic revenue growth excluding Boston. Organic revenue growth excludes the effects of foreign currency, acquisitions, and divestiture. Organic revenue growth excluding Boston excludes revenues from products manufactured in our Boston facility in both periods. Management believes that excluding revenue from all products manufactured at the Boston plant through the third quarter provides useful information when evaluating the company's organic growth because of the unusual nature of the manufacturing stoppage and voluntary global recall impact. 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 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. And with that, I would like to turn the call over to Stuart.

Thank you, Chris, and good morning, everyone. I am pleased today to announce the appointment of Mojda Pol as Integra's next CEO and to discuss our leadership transition. I'd like to start by thanking Jan for his leadership and contributions over the last three years and for his commitment to ensuring a seamless transition. During his tenure, Jan made a number of significant contributions and faced several difficult challenges. His hard work, dedication, and professionalism have been constant throughout. Under his leadership, we grew our international business significantly and added a number of digital innovations to our product pipeline. We executed two important acquisitions, Durazorb, which added an important synthetic product to our breast reconstruction pipeline, and more recently, Aclarent, cementing our entry into the ear, nose, and throat market. In addition, one of Jan's most important contributions has been his ability to recruit top talent to the company. His focus on building strong, capable teams will leave a lasting impact on Integra. While many challenges remain, Jan's efforts have laid the groundwork for our future success. Thank you, Jan. On behalf of myself, the board, and all of our employees, I wish you well. I am also delighted that Mojda Pol will be joining us as Integra's next president and CEO in January. Before sharing details on Mojda's background, I want to underscore that the CEO search process was thorough and competitive, and the opportunity attracted a number of impressive candidates. Mojda is an accomplished healthcare executive with almost three decades of extensive experience leading global businesses and operations in complex multinational organizations. She has a proven track record of delivering growth and performance through operational excellence, portfolio transformation, value-creating innovation, and impactful capital allocation. Throughout her career, Mojda has successfully led business strategy, global operations, R&D, commercial execution, and M&A. Mojda served in several leadership positions at 3M Company, including most recently Group President of Healthcare, an $8.5 billion global business. Prior to 3M, Mojda held leadership roles of increasing responsibility with Medtronic and Boston Scientific. She has also served on the board of directors of Align Technology, iRhythm Technologies, and Stanley Black & Decker. Throughout her career, Mojda has built and led high performing teams across different functions, businesses, and geographies. Her product experience spans Integra's markets, including wound care, neurosurgery, and digital medical technologies. The board and I have enjoyed getting to know Mojda well through this process, and we are very confident she will further strengthen our foundation and usher in our next chapter of innovation, growth, and shareholder value creation. She joins us at a critical juncture in the company's history and is the right leader to drive improvements in Tegra's quality, resilience, and capacity, building upon strong customer demand for our products and ensuring our portfolio is well positioned for continued growth. I know Mojda is looking forward to introducing herself to you when she officially joins us in January. And now I'll turn it over to Jan and Leah to discuss our third quarter results.

Good morning, everyone, and thank you, Stuart, for the nice words and acknowledgments. I look forward to welcoming Mojde as my successor and to working with her through a smooth transition to ensure we maintain the momentum along our improvement path. Turning to slide five of our presentation, our third quarter revenues were $381 million. Organic revenue decreased by 8.6% year over year and we delivered adjusted EPS of 41 cents. Our third quarter results continue to reflect a strong demand for our portfolio. However, ongoing supply challenges limited our ability to deliver against this demand. Our board leadership team and colleagues across the organization remain laser focused on resolving these challenges. As we discussed during our second quarter call, we initiated our compliance master plan, a comprehensive approach to enhance our quality management systems, our QMS compliance across our operations. We continue to work diligently to identify and resolve gaps in our QMS across our sites. As we told you last quarter, we expect the assessments and corrective actions to continue through 2025. We're also investing in facility and equipment upgrades to improve quality, resilience, and capacity to ensure we meet the long-term customer demand. We remain fully committed to doing what's right for our customers, patients, employees, and shareholders. Turning now to an overview of our results for the quarter. Organic growth in our cognitive specialty surgical business was down 10.7%. primarily due to the shipping holds we discussed during our second quarter earnings call. Most of these shipping holds have been lifted, with only a portion of them still needing to be resolved, as was our expectation. These supply challenges overshadowed the continued significant demand for our neurosurgery products. We saw high single-digit growth in specialty surgical instruments, and we continue to see significant reported growth and solid organic growth in our ENT business. The integration of the Eclaren business has continued to outperform our expectations to date. We're pleased with the team's collaboration and remain excited about the growth opportunities in ENT and the synergies with our neurosurgery business. Strong demand in our international markets was also obscured by the shipping holds, resulting in a low double-digit decline in the quarter. Nevertheless, as we look to the future, we remain encouraged by the momentum in our international business and the expansion of our commercial reach. Within tissue technologies, revenues were down 3.7% because production was not yet able to meet the strong demands for integral skin. We continue to deliver strong growth in Durosorb and our UBM portfolio, including Micromatics and Cytal. and double digit growth in our private label business. And our second half production for Integra skill will allow us to return to historical revenue run rates for the fourth quarter. We're also pleased with the progress our team is making with the build out of the Braintree facility. We have largely completed construction and have begun installing equipment within the facility as we continue to work towards bringing the Braintree facility online and resuming production of Surgiments and Primatrix in the first half of 2026. Now turning to our guidance. We are tightening our full year 2024 revenue and adjusted EPS guidance to a range of $1.609 billion to $1.619 billion. and $2.41 to $2.49, respectively. While we delivered on the high end of our third quarter guide, the tightening of the top end of our guide range reflects recent quality holes resulting from the ongoing remediation work taking place as we implement the compliance master plan. We're actively working to remediate the holes and release the products back to market. We expect many of these holds to be resolved within the fourth quarter with the remaining projects remediated by mid-2025. Leah will provide additional color on our guidance for fourth quarter and full year later in this call. So in summary, while we still have challenges left to overcome, we're making progress across our key initiatives and on delivering on our commitments, and with that, I'll turn the call now over to Leah to provide more detail on our financial results and guidance.

Thank you, Jan. Let's take a more detailed look at our third quarter financial highlights starting on slide six. As Jan mentioned, the third quarter's total revenues were approximately $381 million, which was approximately flat on a reported basis. and down 8.6% on an organic basis compared to last year. Our adjusted EPS for the quarter was 41 cents, down 46% compared to 2023. As we look down the P&L, gross margins were 63% for the third quarter, down 160 basis points versus 2023. Gross margins in 2024 were impacted by higher manufacturing inefficiencies, including scrap, along with unfavorable revenue mix such as lower skin revenue. This was partially offset by impact from Boston on the prior year's gross margins. Our adjusted EBITDA margins were 16.2%, down 680 basis points compared to 2023, reflecting the decrease in gross margins and the impact of maintaining key investments in R&D and commercial infrastructure while we resolved the temporary shipping hole. Operating cash flow for the third quarter was $22.5 million. If you turn to slide seven, we'll examine our CSS revenue highlights for the third quarter in more detail. Reported third quarter revenues in CSS were $271 million, up 1% on a reported basis and down 10.7% on an organic basis from the prior year. Global sales in neurosurgery declined 16% on the organic basis, largely due to supply challenges in dural access and repair, and the temporary shipping holds in CSS management and neural monitoring that we discussed earlier in our remarks and during our July call. These holds have largely been resolved within the third quarter, and the remaining shipping holds are in line with the expectations we set in our July guidance. The decline in neurosurgery was partially offset by mid-single-digit growth in advanced energy driven by CUSA capital and disposables. Our ENT business saw 5.3% organic growth for the third quarter. As a reminder, the organic growth in our ENT reporting segment will reflect only the Micro France ENT instruments for the first 12 months following the close of the Eclaren acquisition, which took place on April 1st. On a reported basis, a Clarent delivered revenues of approximately $30 million. We remain pleased with the integration and excited about the future growth potential of the ENT segment. For the third quarter, our capital sales were up low double digits driven by the Serolink relaunch, low double digit growth in Kusa Clarity, and high single digit growth in Mayfield Capital. Our global capital funnel remains robust and well positioned to continue to deliver strong growth. Turning to instruments, we saw 8.7% growth, primarily due to strong demand along with order timing. Shifting to our international business results within CSS, we saw a low double-digit decline in the quarter, mostly attributable to the temporary shipping holds. These holds affected our ability to meet customer demand for the quarter. However, we remain confident in the growth prospects for our international business. Moving to our tissue technology segment, On slide eight, tissue technology sales were $110 million, down 3.6% on a reported basis and 3.7% on an organic basis compared to the prior year. Excluding the prior year impact from the return of product manufactured in Boston, organic growth was down 9.4%. Sales in wound reconstruction were down mostly because production shortfalls for Integra Skin did not allow us to fully meet demand and a challenging year-over-year comparison. We have continued to ramp production on Integra Skin through the third quarter and expect a return to historical revenue run rates in the fourth quarter. The headwind from Integra Skin was partially offset by strong growth across the remainder of the wound reconstruction franchise including low double-digit growth for Durazor, which continues to outpace the deal model for that acquisition. We also saw low double-digit growth of MicroMatrix and Sitel in our UVM platform. Overall, the UVM platform grew by high single digits, demonstrating continued strong demand. Private label sales were up approximately 13% compared to last year due to favorable order timing. Finally, International sales in tissue technologies were down mid-double digits due to the Integra skin production shortages. If you turn to slide nine, I will discuss our balance sheet, capital structure, and cash flow. During the quarter, operating cash flow was $22.5 million, and free cash flow was negative $7.2 million, driven primarily by the revenue impact of the shipping hold and production shortages referenced in our previous remarks and continued investments in CapEx. Free cash flow conversion was 19.7% on a trailing 12-month basis. As of September 30th, net debt was $1.5 billion, and our consolidated total leverage ratio was four times. We are focused on bringing our consolidated leverage ratio back within our target range of 2.5 to 3.5 times with the most immediate benefit coming from resolving the shipping holds in our neurosurgery business and returning to historical revenue run rates for Integra Skin in the fourth quarter. The company had total liquidity of $1.2 billion, including $277 million in cash and short-term investments and the remainder available under a revolving credit facility. If you turn to slide 10, We would like to highlight a few key points about our balance sheet and capital structure as we approach the end of 2024 and prepare for 2025. While we remain focused on improving our cash flow generation, we are confident we have the balance sheet strength and liquidity, including flexibility in our bank facility, to make the essential investments in our operations and long-term growth strategies. Just as a reminder, The EBITDA used in calculating our consolidated leverage ratio includes add-backs for both stock-based compensation and the pro forma impact of the McLaren acquisition. We have sufficient room under our existing credit facility to repay our convertible bond coming due in the third quarter of 2025, and in the short term, we are likely to fund the repayment using our revolver. With our existing interest rate swaps as disclosed in our 10Q, we will have approximately $900 million of fixed rate debt in the low 3% range through the end of 2027. We will continue to monitor the rate environment and work to maintain sufficient liquidity in our capital structure. If you turn to slide 11, I will provide our consolidated revenue and adjusted earnings per share guidance for the fourth quarter and full year 2024. For the fourth quarter, we expect revenues in a range of $441 million to $451 million, representing a reported growth range of 11.1% to 13.6%, and an organic growth range of 2% to 4.5%. Our fourth quarter guidance reflects a step up in sequential revenue driven by the resolution of the majority of the shipping holds they identified on our second quarter call, the production of integral skin allowing us to meet historical revenue run rates for the fourth quarter, and normal seasonality. This sequential step up in revenue will be partially offset by incremental quality holds we have implemented in the fourth quarter. For the full year 2024, revenues are forecasted to be in the range of $1.609 billion to $1.619 billion, representing reported growth of 4.4 percent to 5 percent, and organic growth in the range of approximately minus 1.7 percent to minus 1 percent. We estimate an approximate 150 basis point decline in gross margin for the full year reflecting the impact of the supply challenges, investments, and costs associated with implementation of the Compliance Master Plan. For the fourth quarter, we expect adjusted EPS to be in the range of 81 to 89 cents and $2.41 to $2.49 per share for the full year. Finally, on slide 12, you will see a summary of our guidance considerations and the key assumptions for FX rates tax rates, and share count assumed in our guidance for reference. I will now turn the call over to Jan for his closing remarks.

Thank you, Leah. If you turn to slide 13, I will wrap up our prepared remarks. Across our organization, we remain fully committed to addressing gaps in our quality management system and ensuring our supply meets growing market demands for our products. We've made significant progress in resolving many of the shipping holds in our CSS business. The Clarent integration continues to go smoothly, and we're ramping production of Integra Skin back to historical revenue run rates. While we are encouraged by this progress, we also recognize we still have a lot of work to do. As I prepare to step down as CEO, I do so with a mix of pride and optimism. While I'm proud of our achievements over the past three years, I also acknowledge the challenges that remain. In welcoming Mojde, I leave Integra knowing the organization is in capable hands with an exceptional leadership team and dedicated colleagues focused on strengthening Integra's resiliency and predictability. The company is well positioned for continued growth, supported by a strong pipeline of innovative products that will improve the lives of our customers and their patients for years to come. My commitment to Integra has been unwavering and I remain focused on a successful transition and deeply invested in the company's future success. I would like to extend my heartfelt thanks to Stuart, our board of directors, our management team, and all of our colleagues around the world. I'm very proud of what we are accomplishing together and with that, I'd like to open the line for Q&A.

Thank you. Ladies and gentlemen, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, simply press star 1-1 again. Please stand by while we compile the Q&A roster. Now, first question coming from the line of Steven Ligman with Oppenheimer. Your line is open.

Thank you. Good morning, everyone, and best of luck, Jan. Just a couple from me. I guess first, what are you seeing from the commercial organization and customer stability as you've been going through the supply challenges over the last few quarters?

Good morning, Steve. Thank you for that question.

Look, our product holds, in most cases, were not long-term. They span several SKUs, but the duration of each of those holds was not extended. In addition, those products are differentiated. Customers choose them based on the features and specific attributes they offer, and across or over the different months, and as we resolve, we do all need it to protect strong relationships between our very capable sales reps and those customers. And so with that mix of capabilities and focus, we feel strong about retaining our share with the customers.

Got it. And then, Leah, last quarter you provided, I think, some initial thoughts on 25. Any changes to your thinking, you know, with a few more months passed in the compliance master plan and, you know, obviously with the motion taking over in January, any additional thoughts you can provide on broadly on 25?

Certainly, Stephen. And to your point, we did not provide guidance previously in 2025, but we did provide a way of thinking about 2025. And we continue to believe that it's fair to expect 2025. to show mid-single-digit organic growth over what we're now calling full-year 2024. Even with the additional quality holds that we've talked about impacting Q4, they are within kind of the type of supply disruptions that we referenced. I don't really change our overall thinking in terms of magnitude of impact for potential supply disruption in all of 2025. So that is still a good guide.

Okay, thank you. I'll jump back in here.

Thank you. Our next question coming from the line of Vic Chopra with Wells Fargo. Your line is open.

Hey, good morning, and thanks for taking the questions, Ian. It was a pleasure working with you over the past two years and wishing you all the best in your retirement, and also a warm welcome to most days. A couple of questions for me. So I guess first, did you see any procedures move from 3Q into 4Q as a result of the hurricane And could the IV shortages impact your portfolio? And then a quick follow-up from me, please.

Good morning, Vic, and thank you for the nice words. So, no, we have not seen any significant impacts from hurricanes in terms of procedures moving across. If you could repeat your second part of the question. I didn't fully get that.

I'm sorry. The second part of the question was, have you seen any shortages or expecting any shortages from the saline impact on your surgical procedures?

No, we have not.

Got it. Thank you. And then my follow-up question is for Leah, maybe. Leah, are you still expecting a $10 million impact in Q4 from the shipping holes? I don't think I heard a number. Thank you so much.

Yes, certainly. So to your point, if you recall in our July discussion, we talked about the compliance shipping holds having an estimated impact of about $50 million in Q3. And based on expectation of being able to resolve most of those shipping holds in Q3, it would have a much more limited impact in Q4. And at the time, we estimated about $10 million. We continue to believe that's true. So we are on pace for a much smaller impact in Q4. Order of magnitude is about $10 million.

Thank you.

Thank you. Now next question coming from the line up. Ryan Zimmerman with BTIG. Your line is now open.

Good morning. Thanks for taking our questions, Jan. Best of luck with the family in Europe. I guess I want to talk about margins a little bit. I mean, Leah, you know, I know we're not getting guidance for 25, but just Is there anything to kind of consider in terms of the margin recovery? Do you feel like we're through kind of the trough, if you will, in terms of the margin dynamics? And it's reasonable to assume that as products come back online, that you get more integrous skin, that we should see some improvement in margins as we enter and go into 2025.

Certainly, Ryan. So I'll step through it in two levels. So first, from a gross margin perspective, what we shared previously was as you look at a full year 2025 and we're under a full year of our compliance master plan, we would continue to expect a little bit of a headwind on gross margins, the order of magnitude 60 to 80 basis points. We still expect that kind of order of magnitude again as we move from 24 into 25 at a gross margin level. From an EBITDA margin level, to your point, what we saw in Q3, margins of 16.2%, is not representative of the profitability on this business. Q3 was disproportionately impacted by the compliance shipping holds that we talked about during our Q2 calls. Since we were able to resolve most of those, the majority of those in Q3, you would expect to see improving profitability into Q4. On a full year basis, once again, while we're not providing guidance on 2025, I think it's fair to think of full year 2025 EBITDA margins being similar to full year 2024.

That's very helpful, Leah. And I know Moshe is going to come in and have her views on the company. I guess I just want to ask less quantitatively and more qualitatively around 2025. given that the recovery is not slated particularly in tissue until 2026, you know, in your mind, what, what, how should we think about 25 in a more qualitative manner? I mean, you know, is it a trend transition, you know, is it heads down? I guess what I'm trying to kind of contemplate is, you know, whether there could be some level of improvement or upside And we shouldn't think of 25 necessarily as just a lost year for Integra, given that we're not going to really get back to resumption in 2026. I don't know if you have any kind of high-level strategic thoughts about 25 at this point.

Hey, Ryan. It's Stuart Essig. Maybe I can try to help with that. Let me talk a little bit about Mojda's onboarding and where she's going to be spending time. She'll be joining us in early January, and she'll spend the better part of January and February meeting with Integra leaders, colleagues, and customers, attending our annual sales meetings, and visiting many of our sites across Integra. And of course, she'll be meeting with investors. She's going to be listening and learning about our business and getting to know the teams. After that, with the support of the executive leadership team, Moshe is going to be focused on shaping and executing our neurosurgery, tissue technology, and ENT strategic priorities. These include improving our product quality and regulatory compliance, advancing our site resilience, and executing on our manufacturing capacity initiatives. And while executing on our operational priorities is important, she'll also focus on maximizing the potential of Integra's strong product portfolio. In terms of providing an update on our long-range plan, she'll take the time that's necessary to get to know the business and opportunities and challenges, and we'll be getting back to you with the timeline for providing an update on the long-range plan.

That's very helpful. I appreciate the thought, Stuart. Thank you.

Thank you. And our next question coming from the line of Kristen Stewart with CLK. Your line is open.

Hi. Thanks for taking the question. I just wanted to ask on Braintree, it sounds like you're making progress there. Could there be any hope of getting that facility open sooner than expectations?

Good morning, Kristen.

Thanks for the question. So yeah, as I stated in the prepared remarks, we're pleased with the progress we're making. in terms of finalizing that facility. And as we speak, we are moving equipment into Braintree, which will allow us then to start the process of installing and qualifying, validating the equipment and processes. The plan is still on track to resume production in the first half of 2026, as we communicated. Every earnings call will provide further updates on which milestones we are crossing. So the next one should be in February. But at this point, yeah, production resuming in first half 26 is still in line with what we communicated earlier.

Okay. And then just on the 25 outlook in terms of the top line, I think that still included some potential for additional ship holds to take place. I just wanted to make sure that I was still understanding that correctly. if there's anything that you saw this quarter that made you think that that's more likely than not.

Yeah, so thanks for the question, Kristen. You are correct. So as we framed out the expectation for 2025 to show mid-single-digit organic growth over full year 2024, embedded in that is the potential to absorb any supply disruption of a similar magnitude as what we saw in 2024. So put more simply, Kristen, what it means is we would expect a tailwind in 2025 as a result of the supply recovery from what we experienced in 2024. But that would be offset by the potential for supply disruption in 2025. And so what you're left with is kind of the rest of the business growing at mid-single-digit organic growth. So yes, it's contemplated in there. As it relates to even the quality holds that we've talked about in our prepared remarks in terms of Q4, the nature and type of those are much smaller in terms of the number of SKUs and products as well as the revenue impact versus the compliance shipping holds that we've discussed on our Q2 call. And so because of that, we don't anticipate that being changing our view in terms of the potential magnitude of supply disruption in 2025.

Okay, thanks for taking the question.

Thank you. And our next question coming from the line of Robin Marcus with JP Morgan. Your line is open.

Oh, great. Good morning, and thanks for taking the questions. Jan, great working with you. Wish you the best moving forward. Two from me. First, I just wanted to ask on sort of staff retention and staff levels over the past few years. There's been, you know, COVID and then the recent manufacturing and sales disruptions. So I was just wondering if we could kind of get a state of the union on where both the quality manufacturing and client-facing sales forces in terms of retention and attrition over the past few years.

Good morning, Robbie. I'll take that first part of the question. Across the company, our retention turnover is normal as previous years. I would say one area over the summer we saw a little uptick, and that's in the surgical reconstruction sales force where we had higher than normal. And that is linked to the updated communication that we did before the summer on the timeline to return Surgiment into the market. So that definitely had an impact on that subset of our tissue technologies sales force.

Okay. Maybe a follow-up on free cash flow. You spoke to in the slides and the prepared remarks the the negative cash flow in third quarter and why it's transient. But as I look back at the analyst day from last year, you had a 90% conversion rate slotted in from the 23 analyst day of over 90% in 2027. I believe you said on the last call free cash flow might be lowered next year as you move through some of these issues and you're integrating the Clarent business. But how do you think about free cash flow conversion over the next few years and your ability to return to, you know, let's call it MedTech peer levels over time. Thanks a lot.

Yep. Thanks, Robbie. So to your point, yes, a couple of changes kind of post that investor day in light of some of the supply challenges that occurred, principally being Boston and then the shipping holds that we experienced and talked about on our Q2 call. So those were, in fact, drivers of why we are not back at the 90% pre-cash flow conversion rate that we talked about. And as we continue to work through the remainder of the shipping hold as well as the compliance master plan, we don't expect to get back up into that 90-plus percent from a pre-cash flow. And so we'll reevaluate as we continue to pace through 2025 and managing through the potential for any supply disruption. and come back with updated thinking in terms of timeframe to determine whether or not we're back into that free cash flow conversion rate of 90 plus percent beyond 2025. We'll do that as part of our next LRP update.

Great. Thanks a lot.

Thank you. And our next question coming from the lineup, Matt Taylor with Jefferies. Your line is now open.

I thank you for taking the question. I actually just wanted to follow up on your comments on the debt and the capital structure. I know you talked about some of the call-outs for stock-based compensation and the acquisitions, but we get a lot of questions about how tight your covenants are and what that could mean in different scenarios as your cash flow evolves here. So could you speak to, I guess, maybe what we can't see in terms of the covenants and give us comfort on your debt situation in the current state, and then maybe talk about different scenarios and how you could get back to your target over the next couple years.

Yeah, certainly. So right now, as we mentioned, our leverage ratio is at four times. Our covenant threshold right now is at four and a half. So we are operating below that covenant threshold in 2024. As we look to manage this business going forward, and certainly as we return to kind of more normal cash flow generation in Q4, now that the compliance shipping holds are largely behind us, that will be the mechanism to help us continue to maintain the business in a way where we're operating under our debt covenants. So you can expect that sort of approach as we move forward. And consistent with my previous remarks, that also does contemplate potential for additional supply disruption in 2025. So we're managing it in light of that in a way that will allow us to remain under that debt covenant threshold.

Gotcha. I don't think you've said this explicitly, but it seems like based on your overall commentary, you think you can get back there. I guess I wanted to understand, is there any scenario where you might have to raise more capital or would something have to go significantly wrong from here for that to happen?

Yeah, so based on where we are right now, we don't see that as an issue. Again, in terms of how we're thinking about the business next year, how we thought about from a color perspective, even absorbing the expectation of potential supply disruptions, we see a line aside of being able to manage this business in a way where we're being under that debt covenant. But again, I can't speculate on some of those existential events that could occur and impact that.

Okay, great. Thank you so much.

Thank you. Now, next question coming from the line of Richard Newiter with True Securities. Your line is now open.

Hi. Thanks for taking the questions. And, Jan, good luck going forward. Great working with you. I wanted to just get a sense for what kind of share recapture on some of these, you know, products that have been off the market that are coming back on, what kind of share recapture are you seeing already as they come on, and how is that informing whatever share recapture assumptions you're considering to achieve that mid-single-digit growth in 2025? I would love to just hear kind of strategically how and why you're able to capture share, the degree to which you are, and what's kind of embedded to get – to a mid-single-digit growth rate next year? And then I have a follow-up.

Thank you, Rich, for the question. As I said earlier, most of these shipping holds are not long-term. And so, first, that means that some of our customers still have their inventory on the shelf that they live off. It's kind of further shortened that the outage for them What we've seen over the past three months is that those couple of weeks of potential outage, given these specifications of our products, we get back to pretty much full share on our products. And so that's the, at least over the past months, has been the experience. It leads us to further make sure when we have a stock shipment, laser focus to make sure we limit that time and limit the risk for share loss.

Okay. And I guess two follow-ups, sorry. One, should we think of whatever it takes to get back up to mid-single digits for a full-year basis relative to the full-year 24 basis, that it's going to be significantly, significantly back half-weighted? Is that a fair assumption? And then just the second follow-up is, should we be considering Thinking about all products that have the potential to go on ship hold is equally kind of equal level of confidence to get to that share capture or share recapture situation. I appreciate their transience, but are all products equal in terms of losing business and then being able to regain it back if competition stepped in?

Thanks. Let me take that. In terms of your first question, in terms of how to think about the business mid-single-digit organic growth throughout 2025, I would not say you should necessarily assume it's back-half oriented or back-half weighted for 2025. We should be able to, again, because of our allowance around the potential for supply disruption, you shouldn't see that significant back-half swing. In terms of the your second question with respect to individual products. So I think across the, and I'll talk about it through two lenses, from a CSS perspective, the products that were impacted by the compliance shipping holds, you had some that were out for a matter of weeks, some that were out a month or two, and some that were out for kind of the duration of Q3. And to Jan's point, those that were out for a few weeks, that's where we don't anticipate much of any impact from a share perspective. Those that were out a little longer, it will take a little longer to get us back up to share recapture position, but as we move into 2025, that's where we think we have an opportunity to resume our position. From an Integra Skin perspective, which is the other area that we were impacted from a supply this year, That's where we, again, as we are entering into Q4 and we're getting back to our historical revenue run rates, you know, we'll see evidence of that in Q4 and we expect to be able to move forward into 2025 managing at that level.

Thank you.

Thank you. And our next question coming from Delaina. Craig Fischel with Bank of America Securities. Your line is now open.

Good morning, and thanks for taking the question. And Jan, I wish you luck in the future. I wanted to start with a Clarent. Obviously, you guys have called out the strength there. I think your guidance has you up 10 to 11 million more than what you had expected initially. So can you just kind of run through what's been going better than expected there and remind us of the growth profile of that business that we should be thinking about in 25 and beyond?

Certainly. So we continue to be excited about the clearance acquisition and the overall progress of the integration. As you recall in our previous call, we saw early indicators of strong integration, the businesses had outperformed expectations in Q2, which warranted a call-up in kind of revenue for that business for the year. To your point, we saw once again in Q3 additional strong performance in that business, and it is leading us to call revenue on that business at $97 million, where previously we had called about $86 million, so about that $10 million to $11 million that you referenced. And again, at the time when we originally... Set the guide for Eclair, we were allowing for the potential for integration disruption as we've experienced in the past, as most companies experienced in the past in terms of integrations of this magnitude. But we've been able to manage through that successfully. Going forward, what we've said in the past and we continue to believe is true, that business has the ability to deliver high single-digit growth. And so that would be how we expect to drive this business in 2025.

Got it. Thanks, Leah. And one new, I guess I wanted to ask specifically on the supply challenges in the dural repair business. I believe that's new this quarter, but please correct me if I'm wrong. But if you could just give a little bit more color on that, that'd be great. Thanks.

Yeah. So within our dural access and repair business, we did initiate a voluntary recall in Q3 last on our patties and strips business. Patties and strips for us is, while very important to our customers, is relatively a small portion of our revenue base. It's less than 2% of our annual revenues. And so that's the nature of the supply hold that you asked about.

Great. Thank you.

Thank you. And our next question coming from the lineup, Joanne Wood City, your line is now open.

Oh, good morning, and thank you for taking the question. It sounds like the implementation of the master compliance plan has really, you know, brought certain things into light and maybe put, I don't want to put words in your mouth, but maybe, you know, guardrails on how you're progressing. But I'd love to get your opinion on what you see as the positives and the negatives of this program, and is this something which rolls through over the next year, over the next couple of years, or how do we think about it? Thank you.

Thank you, Joanne, for that question. So when we talk about compliance master plan, what essentially we're doing is a program that we have structured after the different chapters and elements of the industry standard quality system regulations or QSR. So in a systemic way, we look into our CAPA management process, we look into our document and record controls, and so on and so on. What the program allows us is to do a structured and holistic approach to audit and remediate our quality management system. Pretty much in line with how most of the auditors look at the quality management system. And so what it does is it strengthens our resiliency, our predictability. I think the flip side while we do that is that we may identify some issues, some observations that will lead to some of those quality holes that we have been talking about, but it will make the company predictable, more resilient, and in the end, drive effectiveness and efficiency in our processes.

And I would assume it's going to continue for a period of time?

We will, over 2025, further have observations that will translate into corrective actions. And that's where, before we communicate, it's an 18-month process that we started last summer.

Terrific. Thank you so much, and best of luck.

Thank you.

Thank you. At this time, we have no further questions in the queue. This will conclude today's conference call. Thank you for your participation, and you may now disconnect.