Integra LifeSciences Holdings Corporation

Good day and welcome to the Integra Life Sciences fourth quarter 2025 financial results. 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, please press star 1-1. To remove yourself from the queue, press star 1-1 again. This call may be recorded. I would now like to turn the call over to Chris Ward, Senior Director of Investor Relations. Please go ahead.

Good morning, and thank you for joining Integral Life Sciences' fourth quarter 2025 earnings conference call. With me on the call are Melissa Pohl, President and Chief Executive Officer, and Leah Knight, Chief Financial Officer. Earlier this morning, we issued a press release announcing our fourth quarter 2025 financial results. The release and corresponding earnings presentation, which we will reference during the call, are available at IntegralLife.com under Investors, Events and Presentations, 2025 earnings call presentation. Before we begin, I want 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 tax reports that are filed with the SEC and in the release. Also in our prepared remarks, we will reference reported and organic revenue Unless otherwise stated, all disaggregated and franchise-level revenue growth rates are based on organic performance. Lastly, in our comments today, we will reference 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 8K filed today with the SEC. And with that, I will now turn the call over to Moshe.

Good morning, everyone, and thank you for joining us for our fourth quarter 2025 earnings call. Before I review our 2025 performance and outline our priorities for 2026, I want to briefly acknowledge the recent Supreme Court decision and the administration's announcement regarding new Section 122 tariffs. While these are meaningful developments, there remains substantial uncertainty around the implementation and timing. As a result, Our 2026 full year and first quarter guidance do not incorporate these tariff changes. We are actively monitoring the situation, and Leah will provide more details and context in her remarks. In the fourth quarter, we advanced our transformation, continued to deliver for our customers and patients, and met our financial commitments with revenue of $435 million and adjusted earnings per share of 83 cents. both above the midpoint of our guidance range. This performance builds on a year of meaningful operational and strategic progress. During the year, we further strengthened our quality management system, advanced our compliance master plan, and progressed execution of our risk-based remediation plan while maintaining constructive engagement with the FDA on our warning letter commitments and routine inspections. We also improved supply reliability, enhanced our execution capabilities, and delivered significant outcomes in key supply chain resiliency efforts. Additionally, we advanced our In China for China strategy, completing submission of our initial regulatory requirements. These accomplishments, supported by our portfolio prioritization and disciplined capital allocation, are reinforcing the foundation for future growth and innovation. I want to thank our employees for their significant contributions throughout 2025. Their efforts and steadfast focus on our purpose and our customers have been instrumental in solidifying our foundation and positioning us well for the opportunities ahead. Throughout 2025, we took several important steps to strengthen our company. We welcomed six new leaders to our executive leadership team, adding depth and capabilities that collectively represent decades of global MedTech experience, supporting our focus on quality, execution, and long-term growth. We improved our quality and manufacturing organizations and established operating mechanisms that are driving disciplined execution. We created a transformation and program management office that is focusing the organization on our most important priorities and driving greater accountability across the company. We also launched a supply chain control tower providing daily visibility into key operational metrics and performance across our global network. These mechanisms are already translating into improved operational performance. Our manufacturing resiliency efforts are delivering meaningful yield and supply improvements in Integra Skin and in rebuilding safety stock across critical product lines. We also completed the early relaunch of Primetrix Indoor Repair through a dual sourcing strategy with strong reception from our customers. In parallel, we continued our investment and progress in innovation and clinical evidence. We launched the Mayfield Ghost in the U.S. and received an expanded indication for KUSA clarity in cardiac surgery. We also advanced key clinical evidence programs in support of our wound care portfolio growth and are seeing a meaningful early start in the era of pediatric registry, part of our ENT business. As part of the next phase of our transformation, we have put in place a new operating model to reduce complexity and improve efficiency, alignment, and accountability. Some of the changes associated with the implementation of this new model have impacted our team members. We care deeply about our people and do not take these decisions lightly. These changes are necessary to deliver consistently for our customers and their patients while ensuring the long-term growth, profitability, and success of our company. We remain disciplined in balancing the investments required to strengthen our foundation with improved profitability and cash flow, enabling us to reduce our balance sheet leverage in 2026. If you turn to slide five, you'll see how our long-term value creation model is defined by two parallel reinforcing horizons. As we look to 2026, we are focused on four strategic imperatives that guide our priorities, actions, and resource allocation. These are delivering best-in-class quality, driving supply chain reliability, accelerating growth, and igniting innovation. Delivering quality and supply chain reliability have been and will continue to be the focus of the first horizon of our transformation, while accelerating growth and innovation define horizon two. Both horizons are critically important for our longer-term sustainable growth, profitability, and value creation. Importantly, these two horizons are not binary. We are executing priority programs that support both horizons. While Horizon 1 remains focused on strengthening quality, supply chain reliability, and execution discipline, we are also selectively investing in targeted growth and innovation initiatives that support our growth acceleration in Horizon 2. We will accelerate growth in Horizon 2 by innovating and expanding category leadership where we have clear differentiation and by investing in opportunities that are aligned with our portfolio prioritization. We will continue to build our new product pipeline, advance clinical evidence, and pursue category expansion to drive sustainable growth into the future. A growth priority for us this year is to bring our key products back to the market. We remain on track to have the new Braintree manufacturing facility online by the end of June with equipment qualification and validation progressing as planned. Once operational, Braintree will support the build-out of the inventory to enable the return of Surgimen to the market in the fourth quarter of 2026. Upon receipt of TMA approvals for both Surgimen and Dorazorb, we will have a compelling portfolio of biologic and synthetic products that can capture a meaningful share of the large and growing market for implant-based breast reconstruction. We have additional growth opportunities in outpatient wound care following the CMS reimbursement changes that went into effect on January 1st of this year. These changes have created a level and economically rational playing field in the outpatient setting. Our portfolio was already aligned to the new reimbursement levels, and along with our strong clinical evidence and presence in hospital-based care, we are now uniquely well-positioned to broaden our reach across all sites of care. Lastly, but importantly, impactful innovation and clinical evidence generation remain central to our growth strategy. We are strengthening R&D processes, program management, and execution discipline. Portfolio prioritization is directing investments towards a focused set of high-growth, high-margin opportunities where we have a clear right to win. To accelerate innovation with greater focus, speed, and impact, we recently added a chief technology officer role to our executive leadership team. Teshar Elavia joined Integra in February as the Chief Technology Officer and brings us more than 20 years of MedTech R&D experience, most recently as Vice President of R&D at Beckton Dickinson. Looking ahead, we see continued demand for our products and our future innovations. As we further strengthen our quality management system, supply reliability remains the main driver of performance predictability for us. The progress achieved in 2025 gives us confidence for the year ahead, and we are excited about Integra's long-term growth and value creation prospects. With that, I will now turn the call over to Leah.

Thanks, Mojda. We'll begin with our full-year financial results, starting with slide six. Full-year 2025 revenue was $1.635 billion, representing 1.5% growth on a reported basis and a 0.7% organic decline. The full-year contribution from the Eclaren acquisition was a key contributor to reported growth, while we managed quality remediation work and supply constraints that affected organic growth performance throughout the year. Despite these operational impacts, demand across the portfolio remains strong. For the full year 2025, we delivered double-digit growth in Serrelink, Mayfield Capital, Aurora, Durazorb programmable valves, and six pressure valves. We also achieved above market growth in Duragen and Jarrett instruments, demonstrating the meaningful value our technologies bring to customers and the effectiveness of our commercial teams. Full year gross margin was 61.9%, down 260 basis points year over year, reflecting tariffs, supply pressures, and incremental costs associated with our compliance master plan. These same factors weighed on profitability, with adjusted EBITDA margin of 19.4%, down 60 basis points, and adjusted EPS of $2.23 compared to $2.56 in 2024. Discipline cost management actions helped mitigate some of the impact on both adjusted EBITDA and adjusted EPS. Cash flow from operations for the full year was $50.4 million. Capital expenditures totaled $81.4 million. During the year, we invested in manufacturing infrastructure to improve supply reliability. We also continued funding two major initiatives, construction of the Braintree facility and supporting EU MDR compliance. These projects accounted for about $97 million in cash outlays. As investments in these programs wind down and we see improved working capital and adjusted EBITDA, we expect to see a meaningful and free cash flow beginning in 2026. On slide seven, I will cover our fourth quarter financial results. Our fourth quarter revenues were $435 million, representing a decrease of 1.7% on a reported basis and an organic decline of 2.5%, reflecting a particularly strong prior year comparison that was factored in our guidance. We saw a $33 million sequential increase in revenue from the third quarter due to improved supply and seasonality. Adjusted EPS for the quarter was 83 cents compared to 97 cents in the prior year, which benefited from lower net interest expense and absence of tariffs and a more favorable adjusted effective tax rate in Q4 2024. Gross margin for the quarter was 61.7%, down 350 basis points from the prior year, reflecting increased costs associated with remediation and our compliance master plan, tariffs, and an unfavorable product mix. Adjusted EBITDA margin was 24%, up 30 basis points versus Q4 2024, with the above-named factors impacting gross margins being offset by discipline cost management. Cash flows from operations totaled $11.8 million in the fourth quarter, and capital expenditures were $17.2 million. Turning to slide 8, we'll take a deeper dive into our CSS revenue highlights for the fourth quarter. Global Neurosurgery delivered 1.4% organic growth supported by broad demand across the portfolio and strong performance in international. Growth was led by double-digit performance in Serolink, Mayfield Capital, and Aurora with above-market contributions from Vactocele, Dorigen, and CRUSA. Our capital business grew in the low double digits, benefiting from strong pipelines and disciplined commercial execution. Instruments posted low single-digit growth consistent with market trends. In ENT, revenue grew 2.2%. Aera and Trudy Navigated Disposables experienced double-digit growth, while Microfrance ENT Instruments saw mid-single-digit gains. However, these positive results were partly offset by continued reimbursement headwinds affecting sinuplasty blooms. International markets remained a meaningful contributor to the CSS business with high single-digit growth led by double-digit performance in China and Canada. Overall demand indicators across our global markets remain strong. Moving to our tissue technology segment on slide 9. Tissue Technologies revenues were $111.6 million, down 12.8% on both a reported and organic basis compared to the prior year. Fourth quarter sales in our wound reconstruction franchise declined 21.4%, reflecting the previously communicated remediation efforts for MetaHoney, and a tough comparison with last year's record IntegraSkin revenue, which benefited from significant backorder clearance in the fourth quarter of 2024. In private label, sales were up 20.1% year-over-year, due in part to improved partner orders and timing. Finally, international sales in tissue technologies declined by low double digits, reflecting Integra Skin lapping its strongest revenue quarter last year, following backorder clearance and the impact of MetaHunt. If you turn to slide 10, I will provide a brief update on our balance sheet, capital structure, and cash flow. During the quarter, operating cash flow was $11.8 million driven by restructuring costs and an increase in working capital due to revenue collection timing in the period. Free cash flow was negative $5.4 million, and free cash flow conversion was minus 8.5% for the quarter. As of December 31st, net debt was $1.6 billion, and our consolidated total leverage ratio was 4.5 times within our current maximum allowable leverage of five times. We expect to remain within our allowable leverage through 2026. We expect to see meaningful deleveraging, which will allow us to approach the upper end of our target leverage range of 2.5 to 3.5 times by the end of 2026. The company had total liquidity of approximately $516 million, including approximately $264 million in cash and short-term investments, with the remainder available under our revolving credit facility. Turning to slide 11, I will provide our consolidated revenue and adjusted earnings per share guidance for the first quarter and full year 2026. I will also provide perspective on the treatment of tariffs in our guidance, considering the recent Supreme Court ruling and subsequent response from the administration. For the first quarter, we expect revenues to be in the range of $375 million to $390 million representing reported growth of minus 2% to positive 1.9%. This includes an approximate 140 basis point tailwind from foreign exchange. We expect organic growth to range from minus 3.4% to positive 0.5%. First quarter revenue guidance reflects an approximate $10 million headwind primarily due to MetaHoney and order timing. Turning to the full year 2026, we expect revenues to be in the range of 1.66 to $1.7 billion, reflecting modest top line growth expectations. This equates to reported revenue growth of 1.6% to 4.1%, reflecting an approximate 80 basis point foreign exchange tailwind and organic growth of 0.8% to 3.3%. Regarding the quarterly revenue progression through 2026, the sequential step down from the fourth quarter into the first quarter reflects a quarterly cadence that is consistent with what we've experienced in recent years, particularly following a strong fourth quarter. We continue to see solid underlying demand across the portfolio, while organic growth is still impacted by supply. As the year progresses, we expect revenue to build supported by normal seasonality, continued share recapture, and supply recovery. Turning to adjusted earnings per share and tariff treatment in our guidance. On Friday, the U.S. Supreme Court ruled that the tariffs imposed under the International Emergency Economic Powers Act, IEPA, were unlawful. With context, the company paid approximately $20 million in tariffs in 2025, of which an estimated $16 million was imposed under IEPA authority. Following the ruling, the administration announced that it is imposing a new global tariff under Section 122 of the Trade Act. Given the continued uncertainty regarding implementation details, potential exemptions, and any subsequent trade actions, the ultimate impact of these measures remains unclear. Accordingly, the company's guidance continues to reflect the tariff assumptions in place prior to development this past week and does not contemplate the recovery of any amounts paid prior to the Supreme Court ruling. We expect first quarter adjusted earnings per share of 37 to 45 cents. This includes an approximate $0.07 impact from tariffs. Also worth noting that we expect the benefits of the operating model changes to materialize beginning in the second quarter. For the full year, we expect adjusted earnings per share in the range of $2.30 to $2.40. Full year earnings per share reflect an approximate $0.32 impact from tariffs offset by the execution of our margin improvement initiatives and ongoing operational improvements resulting in gross margins that are expected to be approximately flat with the prior year and EBITDA margin improvement of approximately 40 basis points. For your reference, we have included the key assumptions underlying our first quarter and full year guidance, as well as key modeling inputs on slide 12.

With that, I will turn the call back to Moshta. Thank you, Leah.

In closing, as we look ahead in 2026, our focus remains on continuing to strengthen the foundation of the business. We will continue to advance quality, improve supply reliability, and drive consistent execution across the organization. At the same time, we are being deliberate in positioning the company for what comes next. As we return key products to the market, recapture share, and sharpen our approach to innovation and portfolio prioritization, we are laying the groundwork to support accelerated growth over time. With strong positions in attractive end markets, our focus in 2026 will remain on delivering quarter-to-quarter consistency while building the foundation for sustainable growth and value creation. With that, operator, please open the lines for questions.

Thank you. As a reminder, to ask a question, please press star 1-1. If your question hasn't answered and you'd like to remove yourself from the queue, please press star 1-1 again. Our first question comes from Ravi Misra with Truist Securities. Your line is open.

Hi, good morning. Thank you for taking the questions. I guess two questions for me up front. First, just on the free cash flow generation and improvement, it's a little bit weaker than I think we thought what we were looking for in kind of the prior expectations. Can you just help tease that out a little bit and what you're kind of contemplating in 2026 and then secondly just on the tissue technologies business you know a lot of stuff just going on still lingering in the air here around cms changes and how how companies are reacting to that can you maybe talk about what you're seeing in the field here early on in uh the first quarter thanks so i'll start and thank you for the question ravi in terms of free cash flow for the quarter um to your point the free cash flow was negative five million dollars

A lot of that driven by timing of collections in the period, so that explains about two-thirds of that. The other third is driven by restructuring costs associated with the transformation and the outmodel changes that Moshe referenced in her remarks. Perhaps more importantly, though, as we move into 2026, we do expect to see a much improved cash flow profile. We're going to experience reduced cash outlays associated with some of our key initiatives that I talked about, namely EU MDR compliance along with Braintree. And for reference, to put it in context, for 2026, we're expecting operating cash flow to be north of $200 million, which is about $150 million improvement over 2025 landed. About half of that $150 million is driven by EU MDR and Braintree cost reductions. And then the other half is driven by improved working capital profile, lower CapEx, and better EBITDA for the year.

Yeah, Robbie, this is Moshe, and thanks for your question. To answer your second question, the changes, the reimbursement changes, yes, there are changes that are happening in the market, and where they actually are going to land remains to be seen. We will continue to monitor. But suffice it to say that, again, a reminder that our business is 90% in the acute care setting. And also, one thing to keep in mind is the pricing that we have for our products are well within the new reimbursement range. So we do not expect to see any negative impact on our business as a result of the changes. One of the things that we're hearing, though, from the market and we're seeing in the market is that the customers are really curious about better understanding the dynamics and the changes, and our health economics teams are being asked by some of our major customers to actually sit down and educate them on what the changes are, which is a great opportunity for us because, if anything, the changes are very much aligned with the strategy that we've had for this product category, which is investment in clinical evidence, health economics, as well as then being able to represent our full portfolio across the entire sites of care. So obviously the anticipation is that this market is going to shrink because of the reimbursement pricing significantly being reduced. And who are the players that are going to remain in the market remains to be seen as to how much they can economically absorb because of this significant reduction in the reimbursement rate.

Thank you. Our next question comes from Robbie Marcus with JPMorgan. Your line is open.

Hi, this is Alan on for Robbie. Just to start off, I wanted to ask on your assumptions behind growth for both CSS and tissue tech, both for fourth quarter and for the full year, just how you're thinking about that in the context of the full company guide.

Yes, certainly. So from a Q4 standpoint, let me first start by saying how excited we are about the performance of the business in Q4. As I mentioned in my remarks, we delivered a sequential step-up of about $33 million versus Q3, which we believe is evidence of the strength of the underlying demand for our portfolio. Within that, as you look at CSS and Tissue, both delivered revenue that were largely in line with our expectations. CSS delivered a low single-digit growth, which is on top of a very tough comp from the prior year. If you recall, in Q3 of 2024, we experienced a supply interruption. Q4 benefited from strong backorder clearance, and so we were lapping that on that business. And despite that, we saw double-digit growth across parts of the CSS portfolio, namely Sarah Link, Mayfield Capital, and Aurora, and high single-digit growth in CUSA. So strong performance within and overall given the comp that we saw versus 2024. In tissue, similarly, we saw declines in that business in Q4. Again, not unanticipated. Once again, we were facing a meta honey remediation headwind for Q4 of 2025 coupled with Integra Skin facing a very strong comp again. So we saw a strong backorder clearance on Integra Skin in Q4 of 2024, and in 25 we comped that, which describes the performance for tissue. As we move into 2026, I think, you know, as we talk about kind of growth expectations across both of those businesses, I think it's important for me to kind of ground you in how we approach guidance for this year. Our guide intentionally reflects the demonstrated progress that we've made in terms of the remediation work that we've conducted all year long. It assumes a measured ramp for any products as we return them back to market. And it assumes that supply from products not already in market will be layered in over time. And it, quite frankly, allows for prudence as we continue to improve our capability, improve overall visibility. With that, the growth expectations for both CSS and tissue are below market, but not driven by demand, definitely a reflection of supply. So for CSS, we're expecting a flat to low single-digit growth on that business, and for tissue tech, we're expecting low to mid-single-digit growth during the course of 2026.

Got it. Thank you. And you kind of touched upon my follow-up question there, but just, you know, the health of the underlying markets and the demand you're seeing both from a procedure and capital standpoint just to kick off the year. Has it remained, you know, relatively healthy? And what are you assuming for the balance of the year? Thank you.

Yeah. So to that end, exactly. The growth expectations aren't a reflection of demand. We do continue to see strong demand across both parts of the business as evidence of what we saw in our – performance in Q4, and then even on tissue tech as we exited Q4, we continue to see strong momentum on that business specific to Integra Skin that we expect to drive kind of the full-year growth expectation that I articulated.

Thank you. Again, to ask a question, please press star 1-1. Our next question comes from Vic Chopra with Wells Fargo. Your line is open.

Hi, this is Namrata on for Vic. Good morning and thank you for taking our questions. I have two questions. So first, with Braintree expected to resume mid-2026 and Surgiment relaunching in Q4, what are some of the key milestones you're focused on to ensure a strong return to market?

Thank you for your question. We remain on track with the operationalization of the Braintree by the end of June of this year. And the milestones that are remaining is mainly process validations that are required before we get to the inventory bill. So we remain on track for that. And those are going to continue until the plant is going to get operationalized.

Thank you. That's helpful. I have one other question. So for Prime Matrix and Duo Repair, these have been historically very solid contributors. So what's your outlook for the recovery and ramp in 2026? Thank you.

So to your point, we relaunched Duo Repair and Prime Matrix early, about 12 months ahead of plan. So we relaunched them in Q4 of 2025. Early read on both, they're performing really well in terms of customer reception as we're getting back into market. So we're looking at that and continuing to build on that as we move throughout the year. And as part of our guidance strategy, assuming kind of a measured ramp as we build back, but using the learnings coming from that relaunch as we plan for the Surgimen relaunch that will happen in Q4 of this year. So excited about the early read and the opportunity to make both of those products a strong contributor to our overall performance this year.

Thank you.

Thank you. Our next question comes from Travis Deed with B of A Securities. Your line is open.

Hi, this is Rae on for Travesty. Thanks for taking our questions. Just to follow up on Alan's question, what is the status of the MediHoney remediation efforts? Is it still excluded from the guide, or has it been baked in for Q1 in 2026?

Yeah, thank you for your question. We haven't accounted for any revenues for MediHoney for this year in our numbers. We have been remediating that product. It's one of those products that the remediation has continued into 2026. We obviously love to have these things go a lot faster, but we're taking our time to do it right. We want to make sure when we bring the product back to the market, we have a safe and quality product for our customers. So we are diligently working on that. If we get to pull the timeline up, that would be upside for us. But we don't have anything accounted for in our guide at this point in 2026.

Makes sense. And then just one on the tissue technology organic growth. How much did the low double-digit decline internationally contribute to the decline there? I know you mentioned it's partly due to meta honey, but is there any additional color you can give Has there been any material change in international market dynamics, and how should we be thinking about China going forward? Yeah.

So in terms of the international component of tissue tech, not as significant a driver, our international business is primarily CSS. As you look within the tissue tech performance, the decline of 12.8% at MetaHoney, the decline would have been about 6%, and that's largely driven by Integra Skin, and again that driver was the prior year comp, right? Strong backorder clearance in Q4 of 2025. Going forward, right, as we exit Q4, we continue to see strong growth on Integra Skin, consistent with the expectations that we have for performance on the brand for the full year, so not concerned about that as we move forward. To your second question about, I think, China and as part of the international portfolio, We saw a strong performance, double-digit performance in China and Canada for our international business, and we expect that to continue to be a strong growth contributor in 2026 and as we move forward.

Sounds good. Thank you.

Thank you. That concludes the question and answer session, and you may now disconnect. Everyone, have a great day.