Integra LifeSciences (IART) Earnings Call zum 3. Quartal 2026: Störungen in Cincinnati belasten Ausblick

Wichtigste Erkenntnisse

• Integra LifeSciences (IART) meldete für das 3. Quartal 2026 einen Umsatz von 411,2 Millionen US-Dollar, ein Plus von ausgewiesenen 2,3 % und organisch 2,5 %, trotz einer Umsatzbelastung von etwa 7 Millionen US-Dollar durch die Betriebsunterbrechung im Werk Cincinnati.
• Das bereinigte Ergebnis je Aktie stieg auf 0,59 US-Dollar von 0,54 US-Dollar im Vorjahreszeitraum. Die bereinigte Bruttomarge sank auf 61,1 % von 62,9 %, was hauptsächlich auf entgangene Bruttogewinne aus Cincinnati und einen unvorteilhaften Produktmix zurückzuführen ist.
• Der Umsatz im Bereich Specialty Surgery stieg um ausgewiesene 3,9 % und organisch 4,2 % auf 304,1 Millionen US-Dollar. Der Bereich Neurosurgery wuchs organisch um 6,5 %, was die Schwäche im Bereich Tissue Reconstruction ausglich.
• Der Umsatz im Bereich Tissue Reconstruction sank um 2,2 % auf 107,1 Millionen US-Dollar. Dem Wachstum bei DuraZorb und PriMatrix stand jedoch der Druck im Bereich UBM, vor allem bei MicroMatrix, sowie eine langsamere Erholung der Marktanteile bei bestimmten IntegraSkin-SKUs gegenüber.
• Das Management bestätigte seinen revidierten Ausblick für 2026 von 1,634 Milliarden bis 1,654 Milliarden US-Dollar beim Umsatz sowie 2,30 bis 2,40 US-Dollar beim bereinigten Ergebnis je Aktie. Die Unterbrechung in Cincinnati und der schwächere Ausblick für Tissue Reconstruction reduzierten den Mittelwert der Umsatzprognose um etwa 30 Millionen US-Dollar.
• Der operative Cashflow erreichte einen Quartalsrekord von 96 Millionen US-Dollar. Der Verschuldungsgrad sank auf das 3,8-Fache, während eine anschließende Refinanzierung über 2,1 Milliarden US-Dollar die Fälligkeiten der Verbindlichkeiten verlängerte und die finanzielle Flexibilität erhöhte.

Wichtige Finanzdaten

Geschäfts- und operative Entwicklung

Spezialchirurgie blieb der wesentliche Wachstumstreiber. Die Neurochirurgie wuchs um 6,5 % organisch, unterstützt durch CeraLink, Certas Plus, BacTeele, DuraSeal und kraniale Perforatoren. Das Management gab an, dass die Nachfrage weiterhin robust sei und sich die Produktverfügbarkeit in großen Teilen des Portfolios verbessert habe.

Der internationale Bereich Spezialchirurgie wuchs um 7,8 %, was eine bessere Produktverfügbarkeit und Stärke in mehreren Regionen widerspiegelt. Der Bereich Instrumente ging 0,9 % organisch zurück, hauptsächlich aufgrund des Auftragszeitpunkts, wobei verzögerte Aufträge voraussichtlich im 4. Quartal erfüllt werden. Der Bereich HNO ging 1,1 % organisch zurück, einschließlich eines Rückgangs im niedrigen einstelligen Bereich bei Sinusballons.

Geweberekonstruktion sank um 2,2 % sowohl auf berichteter als auch auf organischer Basis. PriMatrix und DuraZorb verzeichneten ein starkes Wachstum, das jedoch durch die Schwäche von MicroMatrix und eine langsamer als erwartete Erholung von IntegraSkin mehr als ausgeglichen wurde. Das Management erklärte, dass Wettbewerbsintensität, Verkaufsförderungsaktivitäten und Personalwechsel im Vertrieb die Umsetzung bei UBM belastet hätten.

Das Unternehmen plant weiterhin einen begrenzten kommerziellen Relaunch von SurgiMend im Dezember 2026, obwohl das Management Zeitrisiken in Bezug auf die finale Dokumentation und die Launch-Aktivitäten einräumte. Die Prognose für das 4. Quartal geht von keinen wesentlichen SurgiMend-Umsätzen aus. Das Unternehmen rechnet 2027 mit einem schrittweisen kommerziellen Hochlauf.

Die Überschwemmung in Cincinnati verringerte den Umsatz im 3. Quartal um etwa 7 Mio. US-Dollar. Die verbleibende Beeinträchtigung konzentriert sich auf die Mayfield-Produktfamilie. Integra geht davon aus, dass der normale Betrieb am Standort im Laufe von Q2 2027 wieder aufgenommen wird, wobei für dieses Quartal von einem geringen Umsatzbeitrag ausgegangen wird und eine bedeutendere Umsatzerholung im 3. Quartal erwartet wird.

Prognose des Managements

Der Ausblick für die Bruttomarge im Gesamtjahr liegt 60 Basispunkte unter der vorherigen Erwartung. Das Management führte etwa 20 Basispunkte auf Cincinnati und rund 40 Basispunkte auf den Produkt- und Portfoliomix zurück, einschließlich niedrigerer erwarteter Umsätze im Bereich Geweberekonstruktion.

Der Ausblick für das bereinigte Ergebnis je Aktie beinhaltet eine Reduzierung von rund 0,06 US-Dollar pro Aktie durch die verstärkten Auswirkungen in Cincinnati, abzüglich erwarteter Entschädigungen aus der Betriebsunterbrechungsversicherung. Aktualisierte Geschäftsprognosen, der Mix sowie sonstige Faktoren verringerten den Ausblick um etwa 0,08 US-Dollar pro Aktie, was teilweise durch etwa 0,04 US-Dollar pro Aktie aus überarbeiteten Refinanzierungsannahmen ausgeglichen wurde.

Die abgeschlossene Refinanzierung wird voraussichtlich zu zusätzlichen Zinsaufwendungen von etwa 8 Mio. US-Dollar im 4. Quartal 2026 und 24 Mio. US-Dollar im Jahr 2027 im Vergleich zum aktualisierten Ausblick für 2026 führen. Das Management erklärte jedoch, dass es für 2027 derzeit ein Umsatz- und Gewinnwachstum je Aktie erwartet, gestützt auf SurgiMend, PriMatrix, Verbesserungen in der internationalen Lieferkette, Produktivität und Kosteneinsparungen. Die formelle Prognose für 2027 ist für Februar geplant.

Risiken und wichtige Beobachtungspunkte

• Es wird erwartet, dass die Beeinträchtigung in Cincinnati das gesamte 1. Quartal 2027 betreffen und sich bis in das 2. Quartal erstrecken wird, wobei die quartalsweisen Umsatzauswirkungen möglicherweise ähnlich ausfallen wie die für Q4 2026 prognostizierten 15 Mio. bis 20 Mio. US-Dollar.
• Das Management geht nicht davon aus, dass aufgelaufene Mayfield-Aufträge nach Wiederaufnahme der Lieferungen in erheblichem Umfang abgearbeitet werden. Einige Kunden könnten trotz Leihgeräte-Programmen, Verlängerungen von Serviceverträgen und Anreizen zur Kundenbindung zu Mitbewerbern wechseln.
• Der Bereich Geweberekonstruktion sieht sich weiterhin Wettbewerbsdruck bei MicroMatrix und einer langsameren Rückgewinnung von Marktanteilen bei bestimmten IntegraSkin-Kunden in der Brandwundenversorgung gegenüber.
• Der für Dezember geplante Marktstart von SurgiMend unterliegt weiterhin zeitlichen Risiken, während die Zulassung für die Brustrekonstruktion von einer erfolgreichen FDA-Inspektion der Produktionsstätte in Braintree vor der Genehmigung abhängt.
• Versicherungserstattungen aus der Betriebsunterbrechungsversicherung erfolgen möglicherweise zeitversetzt zu den entsprechenden Umsatzausfällen, da die Ansprüche einer Prüfung und Genehmigung durch den Versicherer bedürfen.
• Höhere Refinanzierungskosten, Zölle für ein volles Jahr sowie anhaltender Druck auf den Rohgewinn im Zusammenhang mit Cincinnati stellen Gegenwind für das Ergebnis 2027 dar.

Highlights der Analysten-Fragerunde

Das Management erwartet, dass sich das Basisportfolio im Bereich Geweberekonstruktion im Jahr 2027 im Vergleich zu 2026 nahezu unverändert entwickeln wird, wobei SurgiMend den Hauptbeitrag zum zusätzlichen Wachstum liefert. PriMatrix dürfte zudem die Kundenrückgewinnung sowie Cross-Selling-Chancen für IntegraSkin und andere Produkte unterstützen.

Für den Bereich Neurochirurgie beschrieb das Management die Wachstumsrate im dritten Quartal als stärker als das für das vierte Quartal erwartete Niveau. Langfristig sieht das Unternehmen das Geschäft in der Lage, ein niedriges bis mittleres einstelliges Wachstum zu erzielen.

Integra geht davon aus, dass der Verschuldungsgrad Ende 2026 knapp über seinem 2,5- bis 3,5-fachen Zielbereich liegen und sich im Laufe des Jahres 2027 durch anhaltende Cash-Generierung wieder in diesen Bereich hineinbewegen wird. Das Management erklärte, dass M&A-Aktivitäten moderat bleiben werden, bis der Verschuldungsgrad komfortabel im Zielbereich liegt und die operative Erholung fest etabliert ist.

Das Unternehmen erwartet, dass der Volljahreseffekt des Transformationsprogramms von 2026 im Jahr 2027 zusätzliche 10 Mio. bis 15 Mio. US-Dollar an Einsparungen bringen wird. Geringere Sanierungs- und externe Beratungskosten dürften höhere Zinsaufwendungen und anderen Gegenwind weiter ausgleichen.

Im HNO-Bereich strebt das Management über 2026 hinaus eine Rückkehr zum Wachstum an – durch Aera, eine engere Abstimmung mit MicroFrance-Instrumenten und für 2027 geplante Produkteinführungen. Potenzielle Ergänzungsübernahmen werden als längerfristige Chance gesehen, insbesondere von Ende 2027 bis 2028.

Vollständiges Transkript der Telefonkonferenz

Vollständiges Transkript der Telefonkonferenz

Ausführungen des Managements

Operator

Thank you. Good day and welcome to the Integra Life Sciences Third Quarter 2026 Financial Results. Please note, this call may be recorded. I would like to turn the call over to Christopher Ward, Senior Director Investor Relations. Please go ahead. [Operator Instructions]

Christopher Ward

Good morning, and thank you for joining the Integra Life Sciences third quarter 2026 earnings conference call. Joining me on the call are Stuart Essig, 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 Act 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. Organic 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.

Stuart Essig

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 2 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 expected 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 SurgiMend 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. Well, 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 affected, 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 Q2 2027. Turning to tissue reconstruction, our portfolio is recovering, but progress remains uneven.

PriMatrix and DuraZorb have grown meaningfully year over year, while IntegraSkin 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 2 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 IntegraSkin SKUs is taking longer than expected. The primary growth challenge remains in UBM, where performance has offset progress elsewhere in the portfolio.

On SurgiMend, 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 a December limited commercial launch. Our Q4 guidance continues to assume no material revenue contribution from SurgiMend. 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 reengage customers and expand availability. SurgiMend 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 SurgiMend 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.

Unknown Speaker

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. Operating cash flow was $96 million, a record quarter for Integra. Turning to Slide 5, I will 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 surgery performed ahead of our expectations, largely offsetting softer performance in tissue reconstruction. Foreign Exchange represented 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 59 cents from 54 cents in the prior year period, primarily reflecting the increase in revenue and reduction in operating expenses attributable to our cost reduction initiative.

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 strengths 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 CeraLink, Certas Plus, BacTeele, and DuraSeal, along with cranial perforators. Neurosurgery remains a foundational business for Integra, supported by resilient product demand, 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 team.

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. ENT 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. DuraZorb and PriMatrix delivered strong growth, which was more than offset by lower revenue from our UBM portfolio and IntegraSkin. These results reflect continued pressure in UBM and a more gradual recovery than expected in certain IntegraSkin SKUs. PriMatrix 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 wound 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 comp. Our outlook reflects continued momentum in PriMatrix, balanced against an updated view on the pace of growth in IntegraSkin and ongoing pressure in UBM. We expect these trends to continue in the near term as we focus on improving our commercial execution and rebuilding growth across the portfolio. Following its planned launch in the fourth quarter, we also expect SurgiMend 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-offs, 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 8, 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 2.5 to 3.5 times. On October 19, we completed a $2.1 billion refinancing consisting of a $1.65 billion senior secured credit facility and $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 used 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 2. 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 expect adjusted gross margin to be approximately flat compared with 2025, which is 60 basis points below our prior expectation for 2026. Twenty basis points of that change in disruption and approximately 40 basis points relates to product and portfolio mix. Our adjusted earnings per share outlook reflects three primary changes.

First, the increased Cincinnati-related impact, net of expected business interruption and insurance recoveries, reduces the outlook by approximately 6 cents 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 8 cents per share. Third, revised refinancing assumptions partially offset these impacts by approximately 4 cents 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.

Stuart Essig

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 reduce 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.

Operator

Thank you. [Operator Instructions] Our first question comes from Matt Taylor with Jefferies. Your line is open.

Fragen und Antworten

Matthew Taylor

Good morning. I just wanted to see if we could dig in further on the trends in tissue. The presentation talks about some declines in UBM and IntegraSkin. I was hoping you could unpack that further. And we've had 2 quarters of declines in this business. I was wondering if you could comment on whether you think we'll see growth in 2027.

Stuart Essig

Okay, 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, provided 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 CeraLink, Certas Plus, BacTeele, DuraSeal, and cranial perforators, and so on. The strong inventory availability also reduced the supply uncertainty. On tissue reconstruction, the primary headwind was slower share recapture in IntegraSkin and in UBM, not a broad-based demand or supply issue. In IntegraSkin, 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 PriMatrix, 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 IntegraSkin and UBM and other tissue reconstruction 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.

Matthew Taylor

Thank you. And could you comment on 2027 at all?

Stuart Essig

Why don't I take that... Yes, go ahead, Leah. Why don't you take it?

Unknown Speaker

Yes. 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. We do expect to see growth contribution from SurgiMend, right? We'll be, you know, our first full-year SurgiMend in 2027. So that should drive growth versus 2026 for the entirety of that part of our portfolio.

Matthew Taylor

Got you. Thanks, Leah.

Operator

Thank you. Our next question comes from Ryan Zimmerman with BTIG. Your line is open.

Ryan Zimmerman

Good morning. We, you know, 2027, you know, so we have to think about obviously the impact of interest expense in our models, and I know that, you know, maybe we're a little early for 2027 guidance, but can EPS, even grow at this point? I mean, with an incremental $24 million in interest expense, it looks like it's going to be down a bit from 2026. And just, you know, want to give you a chance, given your comments on gross margins as well, to to maybe kind of help people think or frame up 2027 a little bit.

Unknown Speaker

Yes, so thanks for the question, Ryan. So let me back up, talk about, you know, 2027 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 SurgiMend 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 IntegraSkin 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. 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 will see some growth in EPS, but beyond that in terms of characterizing exactly how much, we'll save for our February conversation.

Ryan Zimmerman

OK, very, very helpful is a good jumping off point. And then, you know, Stuart, if I could turn to ENT for a minute. You know, it's been a challenge, I think, for several quarters now. I'm curious if you could reflect on the shape of the business, the recovery curve, and kind of how you get that working to your advantage.

Stuart Essig

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 neuro business, 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.

Ryan Zimmerman

Okay.

Operator

Thank you. Our next question comes from Jason Bedford with Raymond James & Associates. Your line is open.

Unknown Speaker

So, this is Elena, I'm for Jason. You made some nice progress on leverage this quarter, and I was just wondering, how are you thinking about deleveraging after you reach your 3.5 times target, and will your capital allocation priorities shift from paying down debt to perhaps M&A or buybacks. I think you mentioned tuck-in M&A for ENT in your last answer. Yes, thanks.

Stuart Essig

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 2.5 to 3.5 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 best opportunities clearly are adjacencies to our existing franchises and our established capabilities, and certainly one of those areas is ENT.

Unknown Speaker

Yes, and if I could build on that, because 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, leverage is 3.8 times. We continue to believe we're on a path and expect to deliver additional cash generation in Q4 that will allow us to bring leverage down to just outside that targeted range that you mentioned, that 2.5 and 3.5 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 cash flow generation.

Unknown Speaker

Okay, that's helpful. And for my follow-up, I have one on Cincinnati. Could you maybe just talk about what are the remediation steps needed to get manufacturing back up and running? What are the variables in the recovery and could it possibly happen faster than Q2 2027? Or could there be upside to the $15 million to $20 million impact if you're able to kind of mitigate by manufacturing at other facilities? Thanks.

Stuart Essig

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. The headwinds 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.

Unknown Speaker

Thank you for taking my questions.

Operator

Thank you. Our next question comes from Ravi Misra with Truist Securities. Your line is open.

Ravi Misra

Good morning. Thanks for taking the question. So just on the neuro business and Cincinnati, when you talk about return to manufacturing, how should we kind of put that in the context of revenue? I mean, you've talked about an impact through the first half of next year, but you've kind of quantified that, or not quantified, but you've talked about it from a production perspective. So I'm just curious, like, you know, can you give us some detail around that process front and kind of what the pace of the revenue rebound will be next year. Thanks. And then I'll have one more follow-up.

Unknown Speaker

Certainly, Ravi. So to Stuart's point, we do expect the impact of the Cincinnati disruption to extend into Q2 2027. This assumes from our 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 million 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 2027.

Ravi Misra

Okay, great. And then maybe sticking on Neuro, I have a number of other questions, but I just want to stay here because it was a pretty strong quarter for the company, just even with those headwinds coming up. So you're growing significantly above the market, and I think you've disclosed in the past. How sustainable is that in a kind of normalized production environment?

Stuart Essig

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 the 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.

Operator

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

Unknown Speaker

Thanks, this is Alan on for Robbie. I had a quick question on kind of the broader market and it sort of ties in the question that was asked before, but obviously a lot going on with rising interest rates, neurosurgery, hair length demand still relatively durable despite that and despite the challenges in Cincinnati. So just curious about the health of the broader market and, you know, appetite for capital? Broader market and appetite for capital outside of the refinancing that we just... Hospital CAPEX.

Unknown Speaker

Thank you. Not that. Okay. All right. Yep, got it. 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 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 in the results that we communicated for Q3, revenue of that and so at this point don't see any change to that in the near term.

Stuart Essig

Yes, let me add that while capital overall is only about 6% of Integra's revenue, in the specialty surg division we sell our CUSA product and one of the exciting aspects of that product line is the recent 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 CUSA 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 we're excited about the potential for CUSA Capital going forward both in the U.S. and outside.

Operator

Thank you. Our next question comes from Lawrence Biegelsen with Wells Fargo. Your line is open.

Ross Osborn

Good morning, this is Ross Osborn on for Larry. Thanks for taking our questions. Following up on the prior line of questioning on Cincinnati, but with regards to the second half of next year and beyond, should we view the switching cost as high enough that we should view the $22 million to $27 million of revenue as deferred, or should we expect accounts to convert? And if so, what's a good proportion we should model for the back half of next year?

Unknown Speaker

Yes, so Ross, just to clarify, is the question, hey, do we expect to get backorder clearance once we resume shipment in Q2? That's essentially what you're trying to...

Ross Osborn

Yes, it sounds like we should assume limited revenue for Q2 next year, but potentially get some of that deferred revenue back. Just curious, kind of the split between what's truly lost versus what will come back in the second half.

Unknown Speaker

Yes, so for modeling purposes, 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 equipment and manage through between now and then doing that, which allow us to maintain from a customer based perspective and provide an opportunity for us to maintain share once we are in a position to resume share.

Stuart Essig

Yes, 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, our significant market position.

Ross Osborn

Okay, great. That's helpful. And then maybe just one on the tissue recon side of the business. And I think last quarter we talked about MicroMatrix losing share to new powder form entrants. You know, have you seen that continue during the quarter? And is there a future for MicroMatrix within your portfolio?

Stuart Essig

Um, so when we talk about UBM being under pressure in the third quarter, and we certainly expected in fourth quarter, that is MicroMatrix. There are other UBM 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 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.

Operator

Thank you. Our next question comes from Joanne Wunsch with Citi. Your line is open.

Unknown Speaker

Good morning. This is Anthony for Joanne. On IntegraSkin, could you maybe talk about in the SKUs where you're seeing more gradual share recapture? What needs to be done there to get that share back or re-accelerate the asset with your winning back customers there?

Stuart Essig

Yes, 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 IntegraSkin 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 PriMatrix, to reenter a number of those burn accounts, and over time, demographics, both the excellent performance of PriMatrix, but also having our reps in the burn area, they can articulate the places where IntegraSkin 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.

Unknown Speaker

Okay. That's helpful. And then on SurgiMend, and I know we talked a lot about it that have backed up publicly on the last few years, just given the supply disruptions. Could you just remind us what that opportunity is in the U.S. for breast recon? How quickly you think we could ramp, and if you think that would require its own dedicated sales force. Thank you.

Stuart Essig

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 product that was developed many years ago and is sold now by the Allergan salesforce. The other products like SurgiMend and some of the synthetics had entered the market competitively, a few years ago and we got reasonable share in SurgiMend and we now have a reasonable share with DuraZorb, but neither SurgiMend 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, we have submitted our PMA for SurgiMend, 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 pre-approval inspection at Braintree, which we're expecting next year. 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 SurgiMend and DuraZorb. And we also have a PMA clinical trial while going for DuraZorb, which will be brought to market sometime after the SurgiMend 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.

Operator

Thank you. Our next question comes from Travis Steed with Bank of America. Your line is open.

Rei Tan

Hi, this is Rei for Travis. Thanks for taking our question. Just for the first question, you adjusted 2026 margin guidance to flat on Cincinnati impact and unfavorable mix. I think it was 40 basis points related to product mix. Could you provide more color on what that is referring to and maybe comment on how we should be thinking about the mixed impacts going into 2027?

Unknown Speaker

Yes, certainly. Thanks for the question, Rei. So to your point, our current thinking on gross margins is we'll be flat to 2025. 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.

Rei Tan

Got it, thank you. That's helpful. And then just to follow up on, you mentioned some efforts to remediate the impact from the Cincinnati facility, but was just wondering. Maybe more specifically, do customers have enough inventory to work through while you are getting operations back up and running? I recall you saying a lease, um, capital, but maybe walk through the dynamics you are seeing with customers following the disruption. Are you seeing customers leaving to find alternative suppliers outside the third-party suppliers or other like leasing options?

Stuart Essig

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 product, so 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, is we're trying to, mentioned earlier, is we have a large loaner pool that is used when a company, sorry, 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 a 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.

Rei Tan

Got it. Thank you. Very helpful.

Operator

Thank you. And our last question comes from Vic Chopra with BMO Capital Markets. Your line is open.

Vikramjeet Chopra

Good morning, and thanks for taking the questions. So first one, is the Braintree and EU MDR cost roll-off largely complete? And are there any additional cost savings still to come in 2027 to offset mix in interest? And then I had a quick follow-up, please.

Unknown Speaker

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 EUMDR 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'll go away. And then you asked another question about mixed margins. The cost reduction that we put into place to offset mix and interest in 2027. Any color of that would be great.

Yes, yes, 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 million 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 efficiency. 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.

Stuart Essig

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

Unknown Speaker

As evidence of that, 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 2 previous years, margins had deteriorated quite significantly, and we'll see that kind of start to cease this year and then we expect to be able to hold a similar posture as we move forward in 2027 and beyond.

Vikramjeet Chopra

Okay, that's very helpful. One quick follow-up if I could. I think you called out a 20 basis points gross margin reduction tied to the Cincinnati facility. I'm just curious how much of that carries into the first half of the next year before that facility returns to full production. Thank you.

Unknown Speaker

Yes, 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 growth margins, because it's in the form of lost revenue, and that's, you know, the change that we talked about this morning. 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 go forward as we receive insurance reimbursements.

Operator

Thank you. This concludes the question and answer session. Thank you for your participation. You may now disconnect. Good day.

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