Integra Lifesciences Holdings (IART) Q3 2026 earnings call transcript

Good morning, and thank you for joining the Integra Lifesciences third quarter 2026 earnings conference call. Joining me on the call are Stuart Essick, Chairman and Chief Executive Officer, and Leah Knight, Chief Financial Officer. We issued a press release this morning announcing our third quarter 2026 financial results. The release and earnings presentation we referenced during the call are available at the IntegraLife. com under Investors, Events and Presentations, in a file named Third Quarter 2026 Earnings Presentation. Before we begin, I want to remind you that many 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 Acts reports that we filed with the SEC.

These factors are also detailed in the release. Also, in our prepared remarks, we will reference reported and organic revenue growth. revenue growth excludes the effects of foreign currency, acquisitions, and divestitures. Unless otherwise stated, all disaggregated and franchise-level revenue growth rates are based on organic performance.

Lastly, our comments today will include certain non-GAAP financial measures. Reconciliations of non-GAAP financial measures are included in today's press release, which is an exhibit to Integra's current report on Form 8-K filed today with the SEC.

With that, I will now turn the call over to Stuart.

Good morning, everyone, and thank you for joining us. As many of you know, we provided preliminary third quarter 2026 financial results and an updated full year 2026 outlook on October 2nd in conjunction with the initiation of our refinancing. We recognized that the update was disappointing, particularly because it came against a backdrop of meaningful progress for the company during the year. Today, I want to provide more context on our third quarter performance, the factors that shaped our updated outlook, and our priorities as we look ahead to 2027. For the third quarter, we delivered revenue of $411 million, which was at the low end of our guidance range. During the quarter, the Cincinnati disruption proved more significant than initially expected, and growth in tissue reconstruction did not materialize as anticipated.

At the same time, upside in neurosurgery offset much of those headwinds. We delivered adjusted earnings per share of 59 cents and generated $96 million of operating cash flow. We also reduced leverage to 3.8 times, and subsequent to the end of the quarter, we successfully completed a debt refinancing. The quarter's strong cash generation, lower leverage, and successful refinancing have strengthened our balance sheet and increased our financial flexibility. Together, these are important indicators of the progress we are making to improve Integra's overall financial profile and support continued execution of our priorities.

Before moving on, I want to thank our teams around the world for their hard work and dedication throughout the quarter. They responded quickly to the flooding event while continuing to support customers and advance our priorities across the business. There is a lot going right at Integra. Product availability has improved dramatically across much of the portfolio, and preparation for the planned fourth quarter relaunch of Surgemen continues to advance.

These improvements allow our commercial teams to spend more time in clinical conversations and less time managing supply challenges. We are especially encouraged by the momentum in neurosurgery, where our strong market positions, differentiated technologies, and longstanding customer relationships provide a solid foundation for growth. We have also sharpened the commercial organization around clearer priorities, stronger account planning, and more coordinated customer engagement.

Together, these actions position us to drive more consistent growth over time. Turning to our updated outlook for the balance of the year, two factors developed during the third quarter that led us to reduce the midpoint of our full year revenue guidance by approximately $30 million.

First, the financial impact from the flooding event at our Cincinnati site was greater than we originally expected. We estimate that the disruption reduced the third quarter revenue by approximately $7 million, and we expect an additional revenue impact of approximately $15 million to $20 million in the fourth quarter.

Second, the performance across the portfolio is mixed. Excluding Cincinnati, specialty surgery performed better than we expected and largely offset softer performance in tissue reconstruction during the third quarter. Looking to the balance of our year, our expectations for specialty surgery, excluding Cincinnati, remain largely unchanged from our July guidance, while we now expect lower fourth quarter revenue in tissue reconstruction than previously anticipated. Together, the larger Cincinnati impact and the moderated outlook for tissue reconstruction in the fourth quarter account for the reduction in our full-year revenue outlook.

Leah will provide additional detail on the resulting impact on adjusted earnings per share and margins. With the financial impact established, I want to provide additional context on these items. At Cincinnati, our teams continue to make good progress with recovery activities while supporting customers across the portfolio. Through available inventory and support from third-party manufacturing partners, we have mitigated the disruption across most of the products manufactured at Cincinnati, and now have greater clarity on the products that remain most effective, the production steps required to support them, equipment lead times, and the path to restoring full manufacturing capability.

The Mayfield product family represents the majority of the remaining revenue headwinds associated with the disruption. Mayfield has been foundational in neurosurgery for many years, and we remain confident in the long-term durability of the franchise. We continue to expect a return to full manufacturing operations during the second quarter of 2027.

Turning to tissue reconstruction, our portfolio is recovering, but progress remains uneven. Primatrix and Durazorb have grown meaningfully year over year, while Integra's skin is approximately flat year to date. Progress has been offset by continued pressure in UBM, primarily micromatrix. As a result, we now expect tissue reconstruction revenue to be approximately flat for the full year.

Supply disruptions clearly created volatility in tissue reconstruction over the past two years. Availability is now largely restored across the portfolio, giving us a clearer view of demand. The largest and most strategic parts of the portfolio have improved sequentially through each of the first three quarters of 2026, although the recovery in certain Integra Skin SKUs is taking longer than expected.

The primary growth challenge remains in UBM, where performance has offset progress elsewhere in the portfolio. On Surgemen, we continue to make good progress toward the return to market. We are taking a highly methodical approach to documentation and commercial release activities, as well as building sufficient inventory to support the launch. While there is some timing risk around the completion of these final activities, our expectation remains in December limited commercial launch.

Our Q4 guidance continues to assume no material revenue contribution from surge amend. Our early engagement with KOLs in preparation for the relaunch has been encouraging and reinforces our confidence in the opportunity. For 2027, we are approaching the launch in a similar fashion to Primatrix, with a measured commercial ramp as we re-engage customers and expand availability.

Surge Amend and Durazorb also provide opportunities for greater clinical differentiation in attractive markets, including hernia repair and implant-based breast reconstruction. As part of our dual PMA strategy in implant-based breast reconstruction, we expect an expanded label for surge amend in 2027, followed by Durazorb. Overall, the breadth of our tissue reconstruction portfolio is an important competitive advantage. It gives us the unique flexibility to address a broad range of clinical and economic needs and to position the right solutions for different customers and care settings.

That portfolio approach helps us deepen relationships and expand our presence within accounts. 2026 to date has been a year of meaningful progress, even as we managed through many challenges. We improved product availability, returned important products to market, strengthened our commercial focus, reduced leverage, and increased our financial flexibility. Our strategy remains unchanged. We have strong positions in attractive markets, differentiated products, trusted brands, and longstanding customer relationships.

Our priority now is to build on that foundation and transform this year's progress into more consistent execution and growth. And with that, I'll turn the call over to Leah to provide additional color on our third quarter results and guidance.

Thank you, Stuart, and good morning, everyone. For the third quarter, we delivered revenue of $411.2 million at the low end of our guidance range. Revenue included an approximate $7 million impact from Cincinnati. Excluding that impact, revenue would have been approximately at the midpoint of our prior guidance range.

Adjusted earnings per share was 59 cents compared with 54 cents in the prior year. And operating cash flow was $96 million, a record quarter for Integra. Turning to slide five, I'll walk through our third quarter financial results. Third quarter revenue increased 2.3% on a reported basis and 2.5% on an organic basis. Specialty surgeries performed ahead of our expectations, largely offsetting softer performance in tissue reconstruction. Foreign exchange represented an approximately 20 basis point headwind to reported growth. Adjusted gross margin was 61.1% compared with 62.9% in the prior year.

The year-over-year change primarily reflected lost gross profit from Cincinnati, as well as portfolio and product mix, which were partially offset by planned cost reductions and productivity gains.

Adjusted EBITDA was $80 million, representing a margin of 19.4% compared with 19.5% in the prior year. Adjusted earnings per share increased to $0.59 from $0.54 in the prior year period, primarily reflecting the increase in revenue and reduction in operating expenses attributable to our cost reduction initiatives. These benefits were partially offset by the absence of revenue associated with Cincinnati and the timing of insurance reimbursement approval for lost revenue.

Turning to slide 6, specialty surgery generated revenue of $304.1 million, an increase of 3.9% on a reported basis and 4.2% organically.

Growth was driven by continued strength in neurosurgery and international, partially offset by the disruption at our Cincinnati facility. Neurosurgery was the strongest contributor, growing 6.5% organically, despite an approximate $7 million revenue headwind from the Cincinnati disruption. We saw good momentum throughout the quarter from Serolink, Sertis Plus, BactoSeal, and Duraceal, along with cranial perforators. Neurosurgery remains a foundational business for Integra, supported by resilient product demands, strong market positions, international expansion, and a pipeline of upcoming innovation that we expect will contribute to growth over time.

International specialty surgery grew 7.8% during the quarter, benefiting from improved product availability, strength across several geographies, and continued execution by our commercial teams. Instruments declined 0.9% organically, primarily due to order timing, as orders expected in the third quarter are now expected to be fulfilled in the fourth quarter.

EMT declined 1.1% organically, with sinus balloons down low single digits. Turning to slide 7, tissue reconstruction revenue was $107.1 million, down 2.2% on both a reported and organic basis.

Within the segment, wound reconstruction declined in the low single digits. Durasorb and Primatrix delivered strong growth, which was more than offset by lower revenue from our UBM portfolio and Integra Skin. These results reflect continued pressure in UVM and a more gradual recovery than expected in certain Integra Skin SKUs.

Prime Matrix continued to perform well during the quarter, with run rate sales remaining above 50% of historical revenue levels.

Beginning this quarter, we are referring to our private label business as Corporate Partnerships, a name that better reflects the nature of these customer relationships. Corporate partnerships was approximately flat compared to the third quarter of last year. Looking to the fourth quarter for tissue reconstruction, we expect womb reconstruction revenue to be approximately flat compared with the prior year. And for corporate partnerships, we expect revenue to be down due to a strong prior year count. Our outlook reflects continued momentum in Primatrix, balanced against an updated view on the pace of growth in Integra Skin and ongoing pressure in UBM. We expect these trends to continue in the near term as we focus on improving our commercial executions and rebuilding growth across the portfolio.

Following its planned launch in the fourth quarter, we also expect Surgeman to begin contributing to growth next year. With respect to the Cincinnati flood, we are excluding from adjusted results the direct impacts associated with the event including inventory losses fixed asset write remediation costs and plant restart costs along with the associated insurance reimbursements for those items These expenses and related reimbursements are reflected as adjustments in our non-GAAP results.

Separately, insurance recoveries related to business interruption for lost revenue remain in adjusted results, providing better earnings consistency with the underlying revenue impact they are intended to offset. The timing of these recoveries may lag the underlying lost revenue impact if claims are reviewed and approved by our insurance carrier.

Insurance reimbursements for lost revenue, when recognized, are recorded in other income in our income statement. As a result, certain comparable operating metrics, including revenue growth, gross margin, and EBITDA, will be impacted.

The Cincinnati disruption reduced our third quarter revenue by approximately $7 million, and we expect a $15 million to $20 million impact in the fourth quarter. That lost revenue and the associated lost gross profit create a headwind to gross margin.

Turning to slide eight, operating cash flow was $96 million in the third quarter and capital expenditures were $10 million. Free cash flow was $86 million, representing adjusted free cash flow conversion of 185%. Our strong third quarter cash flow reflects significant reductions in spending on Braintree startup costs and EU medical device regulation compliance, as well as our continued focus on discipline execution.

We have generated just under $130 million in operating cash flow year to date, and we continue to expect full year operating cash flow of approximately $190 million to $200 million. At quarter end, net debt was approximately $1.5 billion. Total liquidity was approximately $559 million. And our consolidated total leverage ratio improved to 3.8 times.

We repaid $46 million of debt during the quarter, consistent with our capital allocation priority of reducing debt. We expect continued cash generation to support further deleveraging and to end fiscal 2026 just above our target leverage range of two and a half to three and a half times. On October 19th, we completed a $2.1 billion refinancing consisting of a $1.65 billion senior secured credit facility and a $450 million of 9.5% senior secured notes due 2033.

The new credit facility includes a $600 million revolving credit facility, a $600 million term loan A, and a $450 million term loan B. We use the proceeds of this refinancing to repay our existing credit facilities and related transaction expenses.

The refinancing extends our debt maturity profile and increases our financial flexibility. The new agreement also provides additional covenant capacity relative to the prior structure. Based on our expected cash generation and debt repayment, we expect to operate comfortably within those requirements.

The refinancing will increase interest expense relative to the prior structure. Assuming current market interest rates, we expect incremental interest expense of approximately $8 million in the fourth quarter and an additional increase of $24 million in interest expense in 2027 compared to our updated 2026 outlook.

Turning to slide 9, I will provide our Revenue and Adjusted Earnings Per Share outlook for the fourth quarter and full year. For the fourth quarter, we expect revenue of $413 million to $433 million, representing a reported decline of 5.2% to 0.5% and an organic decline of 5.1% to 0.4%. At the midpoint, revenue would decline compared with the prior year, driven by the Cincinnati impact. For the full year, our outlook is consistent with what we provided on October 2nd. We continue to expect revenue of $1.634 billion to $1.654 billion and adjusted earnings per share of $2.30 to $2.40. The revenue outlook reflects two primary factors. The first is an increase in the Cincinnati disruption, including the approximate $7 million impact in the third quarter and the expected $15 million to $20 million impact in the fourth quarter.

While our July outlook contemplated disruption at Cincinnati, particularly in downside scenarios within the guidance range, we believed at the time that the impact could be substantially mitigated through recovery actions and stronger performance elsewhere in the business.

The second factor affecting the revenue guidance is a more measured fourth quarter outlook for tissue reconstruction. Our fourth quarter expectations for specialty surgery outside Cincinnati remain largely consistent with our July outlook. For the full year, we expected just gross margin to be approximately flat compared with 2025, which is 60 basis points below our prior expectation for 2026. Of that change, approximately 20 basis points relate to the Cincinnati disruption, and approximately 40 basis points relates to product and portfolio mix.

Our adjusted earnings per share of reflects three primary changes. First, the increased Cincinnati-related impact, net of expected business interruption in insurance recoveries, reduces the outlook by approximately $0.06 per share.

Second, the combined impact of our updated forecast for specialty surgery, excluding Cincinnati, and for tissue reconstruction, as well as product mix and other items, reduces the outlook by approximately $0.08 per share.

Third, revised refinancing assumptions partially offset these impacts by approximately $0.04 per share. For additional modeling details, including foreign exchange rates, tax rate, share count, interest expense, and other income assumptions, please refer to the key assumptions slide.

With that, I will turn the call back to Stuart.

Thank you, Leah. To close, there are four points we want investors to take away from the quarter. First, product availability has improved across much of the portfolio, allowing us to shift our focus towards stronger commercial execution.

Second, we have greater clarity on the remaining Cincinnati impact and a defined path to restoring full manufacturing capability. Third, the strength of our neurosurgery business and the breadth of the tissue reconstruction portfolio provide a solid foundation for more consistent growth. And fourth, our cash generation, lower leverage, and completed refinancing have strengthened our financial footing and flexibility.

Looking ahead, our priorities are clear. Continue to execute on the Cincinnati recovery, improve commercial performance, advance our new product initiatives, and generate cash to produce debt. We remain confident in Integra's market positions, differentiated technologies, and long-term opportunity. I want to thank our teams for their commitment, our customers for their continued partnership, and our shareholders and new debt holders for their confidence in Integra.

And with that, we will open the call for questions.

Well, thank you. And why don't I step back a bit and just put the quarter into context with the broader portfolio.

First, in specialty surgery and neurosurgery in particular, it continued to perform quite well, providing an important counterbalance to the slower recovery that you mentioned in tissue recon. Neurosurgery demand remains healthy and is supported by strong market positions and momentum across Serolink, Sirtis Plus, BactoSeal, Duraceal, and cranial perforators. And strong inventory availability also reduced the supply uncertainty. On tissue reconstruction, the primary headwind was slower share recapture in Integra skin and in UBM. not a broad-based demand or supply issue. In Integra Skin, sequential growth continued in both Q2 and Q3, and product availability has improved significantly. However, share recovery for certain SKUs has been more gradual than expected. On UBM, greater competitive intensity, promotional activity, and sales force turnover created additional execution pressure on our side.

As it relates to Prime Matrix, performance has remained broadly in line with expectations and is supporting the rest of the portfolio's recovery. Its reintroduction is also helping create opportunities for products like Integra Skin and UBM and other tissue reconstruction production products. Underlying demand remains healthy, and the revised outlook primarily reflects the competitive pressure I discussed, the pace of our share recovery, and our commercial execution. Our near-term priorities obviously are stronger execution by the team, expanded professional education and clinical activity, better account coverage, and greater leverage across the full portfolio. Thank you.

Why don't I take that?

Yeah, go ahead, Leah.

Why don't you take it?

Yeah, yeah. So to Stuart's point, because of the work that we're doing now around driving better commercial execution, driving professional education, at this point we would anticipate that the base, what I'll call base tissue recon, will continue to be flat in 2027 versus 2026. But we do expect to see growth contribution from surgemen, right? We'll be, you know, our first full year surgemen in 2027. So that should drive growth versus 26 for the entirety of that part of our portfolio.

Yeah, so thanks for the question, Ryan. So let me back up, talk about, you know, 27 more broadly through revenue, and then I will answer specifically your question on EPS. So from a revenue perspective, we do expect growth in 2027. Again, this is our official guidance. We'll do that in February. But we do expect growth sourced from, you know, very meaningful recovery benefits that we see across the portfolio to your point offsetting some headwinds that we'll also face in 2027. On the top line, in terms of key revenue drivers, there's the surge and then relaunch that I mentioned earlier, continued momentum that we see across the business on Primatrix, the improving international supply availability, and you saw evidence of that in our Q3 results, as well as stronger execution more broadly across our base business.

From a headwind standpoint, we will continue to see the impact of Cincinnati disruption in 2027, as well as the more measured growth in Integra Skin and UBM that Stuart just referenced. From an EPS standpoint, we do have headwinds. Our full year impact as a result of the refinancing, as we mentioned in our prepared remarks, will drive an incremental interest expense headwind of $24 million. We'll also see a full year of tariffs in 2027, along with some continued pressure from the Cincinnati-related gross profit impact.

The offsets, though, Ryan, are a combination of the annualization of our 2026 transformation savings, lower remediation spending, improved productivity that we are starting to see evidence as we see the work around strengthening our capabilities, strong cost discipline, which, again, I think you've seen evidence of as we've moved through Q3, as well as some operating leverage. So all those things combined, our expectation is we'll see some growth in EPS, but beyond that, in terms of the characterizing exactly how much, we'll save for our February conversation.

I curious if you could reflect on the shape of the business the recovery curve and kind of how you get that you know working to your advantage Sure Ryan So, in terms of return to growth for ENT, we're certainly looking to that beyond 2026. A number of factors will drive that. we continue to see growth in our Aera product, which is the only product that has a pediatric indication. We also are getting increased collaboration on our Microfrance ENT instruments, which are now partnered with our instrument division. And we expect to introduce new products in 2027 that were in the pipeline when we acquired the business and we've been working through our new product development capabilities.

Also, as we get to the tail end of 2027 and into 2028, there's a myriad of small tuck-in product opportunities for acquisition. As you know early on, that is certainly how we grew our neurobusiness, and we see lots of the same opportunity in ENT. So for the moment, it's heads down, drive the business organically, get synergies from MicroFrance, and bring to market the products that are in development.

Yeah, thanks. So, let me start with just from a strategic perspective where we're at. Our near-term priorities remain unchanged. It's improving the core business execution, generating cash, and deleveraging the business. Until we reach those objectives, we'll be modest on M&A. We certainly continue to have a good pipeline and will be more active when leverage is comfortably in the target range of two and a half to three and a half times debt to EBITDA, and when we're confident that the operational recovery has really taken hold. M&A continues to be a long-term growth tool, but we're not going to compromise on execution or balance sheet discipline. So, So best opportunities, clearly, are adjacencies to our existing franchises and our established capabilities, and certainly one of those areas is EMT.

Yeah, and if I could build on that to address kind of our path to getting back into our target range, I think what you've seen in this quarter, we're making meaningful progress to that end, leverages 3.8 times. We continue to believe we're on a path and expect to deliver additional cash flow generation in Q4 that will allow us to bring leverage down to just outside that targeted range that you mentioned, that two and a half and three and a half times.

And that will position us well to be able to operate within the range in 2027. And that will be fueled, to Stuart's point, by the continued focus on improving cash flow generation.

So, let me talk a little bit about Cincinnati. Our team has, at this point, reoccupied the site and is repairing and replacing the equipment that's required to resume production. That equipment certainly gives us greater visibility on the recovery timeline and the expected Q4 impact and production ramp getting to full manufacturing capacity. capacity. The headmen that we've seen are essentially concentrated in the Mayfield product family, and the recovery plan includes coordinated equipment, validation, supplier, and other operational work streams. Our team is repairing and replacing equipment necessary to resume production, and we expect manufacturing to recover in line with the guidance that we gave, with normal site operations resuming in Q2 2027. Certainly our timeline supported by detailed plans that have been refined and pressure tested since July and continued progress and improved visibility in the work streams and production ramp give us confidence in the current recovery expectation.

But at this point, I think we should stick with our guidance, which is second quarter recovery and no meaningful sales until we really move into the third quarter.

Certainly, Ravi. So, to Stuart's point, we do expect the impact of the Cincinnati disruption to extend into Q2 2027. This assumes from a revenue perspective, all of Q1 is impacted and shipments begin to resume in Q2 2027. The quarterly impact is expected to be similar to the impact that we framed for Q4 2026, so that $15 to $20 million range. And again, we're not providing guidance at this time, but we'll likely assume for guidance purposes, very limited revenue contribution in Q2 of 2027.

So, certainly, we're pleased with the impact of our team in recapturing the market share that was, to some extent, put at risk last year through the various stops in shipping of various products. Having that behind us has freed up the group to go and drive the business again and have confidence in driving the business. I should also mention our international specialty surgery group grew at about 7-plus percent for the quarter, and so we are confident that that group can certainly continue to drive better than market growth. That being said, from Q3 to Q4, we're not expecting a replay of the Q3 overperformance, but we certainly see this business longer term in the low to mid single-digit growth.

Broader market and appetite for capital outside of the refinancing that we just – I want to make sure I understand the question.

Not that. Okay, all right.

So from a broader market standpoint, we've seen a pretty stable market across all parts of our business. As a reminder, as you think about kind of the spaces we operate in, more trauma, acute-based procedures that while, you know, we may see some ability to defer procedures, they're not purely elective procedures. So across the board, we've seen pretty stable market conditions.

In terms of our capital funnel, we continue to see a strong capital funnel that we've been able to drive growth through the business you saw and the results that we communicated for Q3 evidence of that. And so at this point, don't see any change to that in the near term. Yeah, let me add that while capital overall is only about 6% of Integra's revenue, in the specialty surgical division, we sell our KUSA product. And one of the exciting aspects of that product line is the recent gain in our coverage for that product in both cardiovascular surgery and in OBGYN surgery. That opens up some larger markets for us where we're able to sell the KUSA into new markets beyond neurosurgery.

It's interesting, outside the United States, liver surgery is a very big part of our business, and we, again, have an opportunity to drive that in the U. S. as well. So we're excited about the potential for CUSA Capital going forward, both in the U. S. and outside.

Yeah, so, Ross, just to clarify, is the question, hey, do we expect to get back-order clearance once we resume shipment in Q2?

Got it. Yeah, so for modeling purpose, we would not assume, you know, any meaningful backorder clearance once we resume shipping in Q2 2027. So we'll resume shipping against kind of the current demand at that point in time. I think it's helpful to understand that the major product that is impacted in terms of the disruption is one of our capital equipment.

So we do have an ability to continue to support our customers to the extent they have existing capital and, you know, manage through between now and then doing that, which allow us to maintain from a customer-based perspective and provide, you know, an opportunity for us to maintain share once we are in a position to return or resume shipment?

We're certainly putting into place programs to work with our customers to use our loaner pool, which is significant to put in place devices to the extent that they have a broken device and need to replace it. We obviously would rather have them use our loaner than purchase a competitive product. And similarly, we're putting into place programs to have customers hold off on their orders until the product is available again. So you've got to keep in mind Mayfield is a core part of a neurosurgeon's day-to-day procedure in the OR. many of them, most of them were trained on the Mayfield. They really want that product and they want the product back as soon as possible. So, you know, we'll certainly lose some business to some of the smaller competition, but we're quite confident in terms of when we get the product back, maintaining our significant market position.

There are other UVM products, but the primary product there is Micromatrix, and we are continuing to see pressure there. Long term, it's definitely part of our portfolio. It's a very profitable product. It's very efficacious, and the effort on our side will be to use our commercial team to drive our market share going forward. So great product. We're just under pressure from some competitors.

Yeah, the area we've been most hit in is in the burn area where there are competitors who've come in and, for the most part, competed on price. During the period of time that we couldn't supply that product. It was used and had some decent outcomes. So we're going to have to go into those accounts and demonstrate the extent to which our Integra Skin performs better than the competition. And we'll also have to make sure that we're competitive from a price perspective. Now, this is one of the places that Primatrix comes in quite handy. Primatrix is priced at a premium to a number of these lower-priced products, but at a discount to Integra. It's also simpler to bring into the account and get started up more quickly than a new Integra account.

So we see the opportunity to use Prime Matrix to reenter a number of those burn accounts and over time demonstrate both the excellent performance of Prime Matrix, But also having our reps in the burn area, they can articulate the places where Integra Skin might still be superior to use in surgery. So, again, having that broad portfolio of products gives us a lot of different ways to bring products back to our customers. And obviously, as a consultative sales organization, we're not particularly pitching a particular product, but rather trying to match the right product to the patient's need.

So let me start with the market. This is a well-established market. It's about $800 million of revenue, and it's driven principally with Allograft product, in particular a product that was developed many years ago and is sold now by the Allergan sales force. The other products like Surgeamend and some of the synthetics had entered the market competitively a few years ago, and we got a reasonable share in Surgeamend. And we now have a reasonable share with Durazorb, but neither Surgeamend nor Durazorb has a specific breast reconstruction label. And so that's why we ran these clinical trials, and that's why we have submitted our PMA for SurgeMend, which, as you may recall, the FDA has completed its review of clinical safety and efficacy, and we have an approvable decision.

So really all we're waiting for on that is a successful preapproval inspection at Braintree, which we're expecting next year. So getting the site ready for that is a near-term priority. FDA will control the timing of that inspection, but that will then open up the opportunity for our reps to market directly for implant-based breast reconstruction. We already have a sales force that we will leverage into that market. We have plus or minus 30 salespeople, and we're planning to ramp that up to roughly 50 by the end of the year 2027, and they'll carry both Surgeamend and Durazorb.

And we also have a PMA clinical trial going for Durazorb, which will be brought to market sometime after the Surgemen PMA. So we see a huge opportunity here. We're excited by it, and we look forward to this having a meaningful impact for our longer-term growth.

Yeah, certainly. Thanks for the question, Ray. So to your point, our current thinking on gross margins is we'll be flat to 2020, Five, that is down 60 basis points. 20 is related to Cincinnati. Within the other 40, what's reflected is the call down of our full year guide included a call down of revenue associated with our tissue reconstruction business.

And that carries a higher GP or gross margin than the specialty surgery part of the business. And so even though there were some offsets there, they didn't completely offset. And so you do get some portfolio mixed dynamics that contribute to the other 40 basis points that we called out. And then there are some other manufacturing variances embedded in there, but those are the largest pieces.

So Mayfield has a capital component and it has a disposable component, and we continue to provide the disposables for our customers.

The real issue is the Mayfield head clamp reusable products of the capital product. And unfortunately, we don't have significant inventory of that. And that's what's really impacting our numbers for fourth quarter and first quarter and second quarter of 2027. What we are doing, as I mentioned earlier, is we have a large loaner pool that is used when a hospital has a repair to do, and we're making that loaner pool more available. We're turning it more quickly. And we're also trying to maintain those relationships by offering extended service contract on existing products, which we can continue to service, and also providing incentives for customers to hold off and wait till the product is back available in the middle of next year.

So, you know, undoubtedly we'll lose some cases, but again, you know, people have been using this product for well over 50 years, and it's the one they like to use.

Certainly. Yep. Let me start with the Braintree EU MDR. So we have seen, as you saw evidence in our cash flow generation Q3, a significant fall-off of costs. now that we do have Braintree up and operational. And so we do expect to see a tail on that as we continue into 2027. That'll be less about startup costs and more about just to the extent while we're still ramping up volume in that facility, we'll still carry a little bit of idle.

So directionally, we'll continue to see a reduction, but it won't completely go away in 2027. From an EU MDR perspective, We are about 90% through the work there. So we do have a tail on that spend as well. Order of magnitude quarterly is consistent with what we saw in Q2 and Q3, which is about $2 million. We expect that tail to continue into 2027, in which we expect to complete that work, and that's the point in which it will go away.

Yeah, yeah, so a couple things. One, we have the annualization of the transformation work that we did this year. So that's going to get us an incremental $10 to $15 million in 2027. Along the way, we've talked about how we've been, you know, using our operational transformation to embed new capabilities, new ways of working, to drive efficiencies.

And as we complete the work of bringing all of our products back to market, which we expect to do in 2027, that gives us an ability to pull out some of the remediation costs. So lower kind of spend on external consultants, as well as not incurring some of the costs associated with the events in and of themselves will drive an ability for us to, you know, lower those sorts of costs and be able to mitigate some of the new headwinds that we'll see on the business.

Yeah, over the course of this year, we've seen a meaningful reduction on external consulting spend on remediation, and that will persist. So we're quite enthusiastic about those costs being significantly out of the P&L going forward.

Just to put a finer point on it, Vic, in 2026 versus 2025, we're calling for gross margins to be flat. That does represent a meaningful progress versus where we've been. So each of the last two previous years, margins had deteriorated quite meaningfully, and we'll see that kind of start to cease this year. then we expect to be able to hold a similar posture as we move forward in 27 and beyond.

Yeah, so I think it's important to understand a little bit of the mechanics of how the impact of Cincinnati is hitting us from a P&L perspective. So for this year, again, we're projecting at the midpoint about $25 million of an impact to the top line. That impact will also hit gross margins because it's in the form of lost revenue. and that's the change that we talked about the 20th.

From an other income standpoint, that is where we do anticipate recording what we recover from our business interruption insurance for the lost revenue.

And so as we move forward into 2027, you can expect a similar sort of impact where any revenue top line will be a direct hit to the top line. We'll see a gross margin impact as well, but then we'll also see some recovery in other income as we receive insurance reimbursements.