Ravi Misra

Ravi Misra from Truist Securities inquired about the pricing and margin impact of the new product super cycle, the acceleration of OUS market penetration due to EU MDR approvals, and the potential margin profile changes from entering non-orthopedic adjacencies like cardiovascular.

Answer

COO and CFO Fred Hite stated that new technologies command higher premiums and attractive gross margins, which will positively impact overall profitability over several years. He explained that EU MDR approvals, specifically for the 4550 system, enable full product portfolio offerings, facilitating surgeon conversion and driving OUS growth. For cardiovascular, he noted that the domestic implant business has a gross margin profile even higher than the 85% seen in their domestic orthopedic implant business, which is very encouraging for overall gross margin.

Ravi Misra asked three questions: first, about the pricing and margin impact of the new product super cycle in 2026; second, how the EU MDR strategy and 4.5/5.0 approval will accelerate OUS market penetration; and third, the potential margin profile change if OrthoPediatrics expands into non-orthopedic adjacencies like cardiovascular.

Answer

Fred Hite (COO and CFO) stated that new technologies command a higher premium with very attractive gross margins, which will positively impact overall profitability over several years. He explained that the EU MDR approval for the 4.5/5.0 system, providing a full range of product sizes, significantly aids in converting European surgeons and will ramp up OUS business growth. For non-orthopedic adjacencies like cardiovascular, he noted that the domestic implant side of that business has an even higher gross margin profile than OrthoPediatrics' domestic implant business (85%), which is very encouraging for overall gross margin.

Ravi Misra inquired about the free cash flow generation and improvement, noting it was weaker than prior expectations, and asked for clarification on 2026 contemplations. He also asked about the Tissue Technologies business, specifically early Q1 field observations regarding CMS changes and how companies are reacting.

Answer

Lea Knight, Chief Financial Officer, explained that Q4 free cash flow was negative due to collection timing and restructuring costs, but expects significant improvement in 2026, with operating cash flow north of $200 million, driven by reduced outlays for EU MDR and Braintree, improved working capital, lower CapEx, and better EBITDA. Mojdeh Poul, President and CEO, addressed the Tissue Technologies business, stating that 90% of their business is in acute care and their product pricing is well within the new reimbursement range, thus not expecting a negative impact. She noted that customers are seeking education on the changes, which presents an opportunity, and while the market may shrink, Integra is well-positioned.

Ravi Misra inquired about the factors contributing to the weaker-than-expected free cash flow generation and the company's outlook for 2026. He also asked for insights into the early impact of CMS changes on the Tissue Technologies business in the first quarter.

Answer

EVP and CFO Lea Knight explained that Q4's negative free cash flow was primarily due to collection timing and restructuring costs, projecting significant improvement in 2026 with operating cash flow exceeding $200 million, driven by reduced outlays for EU MDR and Braintree, improved working capital, lower CapEx, and better EBITDA. President and CEO Mojdeh Poul clarified that 90% of their Tissue Technologies business is in acute care, with product pricing aligned with new CMS reimbursement ranges, anticipating no negative impact. She noted customer interest in understanding the changes and the potential for market shrinkage due to reduced reimbursement rates.

Ravi Misra from Truist Securities, on for Richard Newitter, asked for the revenue contribution of PriMatrix and SurgiMend before they went off-market, the growth expectations for Aclarent, and the updated financial impact from tariffs for the year.

Answer

EVP & CFO Lea Daniels Knight stated that PriMatrix and SurgiMend contributed about $64 million in revenue in 2022, their last full year on the market, with minimal substitution uptake after the recall. She reiterated the expectation for the ENT segment to deliver mid-single-digit growth for the full year 2025. For tariffs, she updated the expected headwind for the year to approximately $13 million, or 13 cents per share, down from the previous $22 million estimate.

Ravi Misra inquired about how recent tariff rulings are contemplated in the outlook for continuing operations and the pace of the cost reduction program, specifically how to return to a mid-20s operating margin for RemainCo.

Answer

John Deren, Executive Vice President and Chief Financial Officer, explained that the plan includes expected tariffs before the Supreme Court's decision, totaling about $35 million for the year, with significant uncertainty remaining. He noted that inventory capitalization means tariff relief would take at least two quarters. He suggested that operating leverage from mid-single-digit growth and the mitigation of stranded costs would quickly bring operating margins back to the mid-20s in 2027.

Ravi Misra asked how recent tariff rulings are factored into the continuing operations outlook, the expected pace of the cost reduction program and mitigation efforts, and what factors will drive the RemainCo operating margin back to the mid-20s range.

Answer

John Deren, EVP and CFO, stated that the plan contemplates tariffs expected before the Supreme Court's decision, including an additional $18 million in 2026, acknowledging potential upside if tariffs are reduced but noting inventory capitalization delays relief. He explained that operating leverage from mid-single-digit growth in 2027, combined with the mitigation of stranded costs, should quickly bring operating margins back to the mid-20s.

Ravi Misra, on for Rich Newitter, asked about the intra-aortic balloon pump (IABP) opportunity, seeking a breakdown of the expected Q4 revenue between capital and consumables. He also questioned the company's M&A philosophy, asking if the focus on non-EPS dilutive assets signaled a lower tolerance for dilution.

Answer

Liam Kelly, Chairman, President and CEO, explained that the vast majority of the Q4 IABP revenue uplift will be from capital equipment, with the consumable tail to follow over time. On M&A, Kelly clarified that while the strategic criteria for acquisitions remain unchanged, the current market environment with moderating valuations makes it more feasible to find assets that are not dilutive to EPS, which is the company's preference.

Ravi Misra, on for Rich Newitter, asked about the market opportunity for iDose in ocular hypertension patients and requested more color on the FDA dialogue regarding readministration.

Answer

President and COO Joseph Gilliam confirmed that ocular hypertension represents a large market opportunity supported by the company's clinical data, though securing broad commercial coverage is a gradual process. Chairman and CEO Thomas Burns reiterated that while dialogue with the FDA on readministration is ongoing and hopeful, the company is not counting on it and is advancing iDose TREX as the primary next-generation solution.