Integra Lifesciences Holdings Corp (IART) 2014 Q3 法說會逐字稿

Good day everyone and welcome to the Integra LifeSciences third quarter 2014 financial results and strategic business update. As reminder today's call is being recorded. At this time I would like to turn the conference over to Ms. Angela Steinway, Head of Investor Relations. Please go ahead.

Thank you, Keith.

Joining me today in Irvine, California are Peter Arduini, President and Chief Executive Officer and Glenn Coleman, Chief Financial Officer. Earlier this afternoon we issued two press releases: one announcing our third-quarter 2014 financial results and updating our full-year guidance, and the second announcing our new global portfolio alignment, which includes our plan to spinoff the Spine business into a separate public company.

For the call today, we will be referencing a presentation, which can be found on our website integralife.com under Investors, Events and Presentations, in the file named November 3 Strategic Business Update. We have a lot to cover today and expect the call to run for 90 minutes, so please plan your time accordingly.

On slide 2 of our presentation, you may see our forward-looking statements. Statements made during this call are forward-looking and actual results might differ materially from those projected in any forward-looking statement. Please refer to the current slide and the press releases for the specific risk factors with respect to the business changes we announced today. Additional information concerning factors that could cause actual results to differ is contained in our periodic reports filed with the SEC.

The forward-looking statement are made only as of the date hereof and the Company undertakes no obligation to update or revise the forward-looking statements. Certain non-GAAP financial measures are disclosed in this presentation. A reconciliation of these non-GAAP financial measures is available on the Investor Section of our website at integralife.com.

Moving to slide 3, which provides the agenda for today's call, Glenn will begin by discussing our third quarter financial results and outlook for the remainder of 2014. Then Pete will provide additional business updates from the third quarter. This third quarter discussion is audio only. After that, Pete will move into today's presentation to discuss the strategic rationale for the spinout of the Spine and OrthoBiologics business, the portfolio realignment and an overview of the business areas and strategy under the new plan structure.

Glenn will wrap up by providing a brief overview of the planed separation, closing out our prepared remarks. At that time, we will open up the call for Q&A. Given the nature of this announcement, please ask one question and one follow-up and then get back in the queue.

Thank you for your cooperation. And now I will turn the call over to Glenn.

Thank you, Angela.

Starting with the third-quarter financial results, our adjusted earnings and free cash flow were both slightly better than expected. I would characterize our topline performance as relatively in line with our expectations, excluding unfavorable foreign currency translation driven by the weakening Euro versus the US dollar.

Third-quarter sales were once again driven by strength in our worldwide neurosurgery business, which grew 27%, or 2% excluding DuraSeal, despite the tough comparison due to the DuraGen recovery in third quarter last year following the recall. Our global Skin and Wound franchise increased double-digits over the prior-year period. So both of these strategically important business areas are performing very well.

Let me now provide some additional details for topline results in the third quarter for each of our five reportable segments. Overall, US neurosurgery had another solid performance across the portfolio, which led to a 38% sales increase over the third quarter of 2013. On an organic basis, this segment generated a sales increase of 7%, largely driven by strong demand for tissue ablation and neurocritical care capital equipment, each of which increased by double digits year-over-year.

DuraSeal also had another strong quarter and we completed a successful transition of the legacy distribution structure in the US to our direct sales force. We now have a single call point for our Dura Repair franchise moving forward.

For the full year we continue to expect sales in the US neurosurgery segment to increase between 35% and 40% over the prior year, unchanged from our prior guidance. However, given the strong year-to-date performance, we now expect to be at the higher end of our guidance range for US neurosurgery.

Another bright spot in the quarter was the performance in our US Extremities business, which group 15% over the prior year quarter due to higher sales in each major product category. Continuing strength in Skin and Wound products sales, which grew 20% year-over-year, drove the majority of the increase. The expansion of our sales force and addition of new skin specialists, coupled with the launch of our new ThinSkin product line, contributed to the growth. We expect to make incremental investments in sales capabilities in this area as we move into 2015.

As we expected, lower Extremities had a nice rebound from the second quarter, resulting from the rollout of our new Total Foot System and filling sales territories that were open at the end of the second quarter. And we continue to see strong performance from the Premier contract we signed in June. Sales of our shoulder product line, which was launched early in 2014, further contributed to growth in the current quarter and showed a sequential improvement over the second quarter.

New product introductions are a focus for the Company and we are excited about the recent introduction of our new Freedom Wrist solution, which should contribute to sales growth in the fourth quarter. Our full-year sales guidance for US Extremities remains unchanged with an increase of high single-digits to low double-digits.

Moving to the US instruments segment, sales decreased about 7% over the prior-year quarter with roughly equal declines in both acute care and alternate site channels. As hospital spending on new instruments is still cautious, we believe the market will remain soft through the remainder of 2014. For the full year we now expect sales to decrease low- to mid-single-digits, which is slightly below our previous guidance.

Sales in the US Spine and other segments decreased 11% versus the prior-year, largely driven by a decrease of 26% in Private Label, which was consistent with our expectations, as the prior year included a strong recovery from the recall. Moving forward we expect Private Label sales to be down slightly in the fourth quarter.

Our US Spine business declined 3%, as compared to the prior-year period, with mid-single-digit decrease in Spine hardware, also seeing a low-single-digit increase in OrthoBiologics. This is the fifth consecutive year-over-year quarterly sales increase in our OrthoBiologics business.

We are excited about the opportunity and are rolling out new programs to penetrate deeper within our existing customer base, while expanding our sales reach to new users. In addition, we are focused on innovative new products, which will be highlighted at the north American Spine Society meeting next week, including NanoMetalene and Expandable Interbody devices and a new DBM product which Pete will discuss later. Collectively, these efforts will drive a sequential increase in our Spine sales in the fourth quarter and position the Spine business for long-term success.

For the full year, we continue to expect sales for US Spine and other segment to decrease mid-single-digits, which is at the low-end of our prior guidance range.

In wrapping up our segment discussion, third-quarter international revenues increased 6% versus the prior year. That said, it was below our expectations, largely due to unfavorable foreign currency translation, in particular the weakening Euro versus the dollar. To put this into context, had rates remained constant when we issued our guidance in August, our revenues would have been higher by approximately $1 million or half a point of growth.

Despite the currency headwinds, we continue to see solid performance in our DuraSeal product line outside the US, which was the primary driver of growth in the current quarter. In addition, our international Skin and Wound products continue to perform well, particularly in France and the Middle East.

As we look to the fourth quarter, we expect to see a sequential improvement in our international business, due to the release of capital orders in some of our direct markets, awarded government tenders, which will close out and ship, several initial orders from new product registrations and the addition of new distributors. Longer-term we believe our current strategic plans will enable accelerated growth in the international segment. We are making increased infrastructure investments in China and Japan to further drive penetration and, with our recently announced MicroFrance acquisition, we see opportunities for international channel and distribution expansion across our complete instruments portfolio.

We are optimistic about our potential to grow our international presence, but we would also emphasize that as we make strategic changes in each of these markets where we have a presence, quarter results can fluctuate. For the full year, based upon the negative impact of the weakening Euro versus the US dollar in our nine-month results, we are revising sales for the international segment and expect sales to increase high single-digits to low double-digits, a decline from our previous guidance of low double-digits to midteens.

Based upon these revisions, we expect with the low-end of our overall sales guidance range, which is around $920 million for the full year. That translates into the low-end of our earnings guidance range, as well.

Let me now spend a few minutes to walk through the income statement line items. We are pleased to report a sequential and year-over-year improvement in both our GAAP and adjusted margins in the third quarter. In the third quarter, GAAP gross margin increased 90 basis points versus the prior-year period to 62.6%, while adjusted gross margin increased 270 basis points to 67%.

This improvement was mostly driven by shift in product mix, specifically a higher concentration of sales coming from high-margin products, such as Skin and Dura Repair. The improvements in gross margin on a GAAP basis were not as significant as our adjusted gross margins, mainly due to intangible asset amortization from the DuraSeal acquisition.

For the full year 2014, we now expect to be at the high-end of our guidance ranges for both GAAP and adjusted gross margin. We expect to report GAAP gross margin around 62% and adjusted gross margin around 66%.

In the third quarter R&D, expenses increased over the prior year and accounted for of 5.7% of sales. This planned increase is primarily associated with funding clinical work in product development in Extremities and neurosurgery, two areas we believe will be key growth drivers for us long-term.

We expect R&D spending for the full year to remain at approximately 6% of sales, which is consistent with our prior guidance. We are excited about the opportunities in our R&D pipeline and look at this is an area to drive long-term growth.

Moving to SG&A expenses, on a reported basis our third-quarter expenses increased by approximately $10.1 million and 100 basis points as a percentage of sales, as compared to the prior-year third quarter. The increased SG&A costs were a result of higher selling headcount and commission expenses, primarily in US Extremities and US neurosurgery. Hire expense of about $4 million from our ERP system, that went into service in 2014, and costs related to the realignment that was announced earlier this afternoon.

Adjusted SG&A was 42.3% of sales, an improvement of 100 basis points compared to the prior-year period, largely due to better leverage of fixed costs, offsetting the new expense burden of the ERP system. For full-year 2014, we now expect reported SG&A to be in a range of 47% to 49% of sales, which is up from our prior guidance of 46% to 48%, resulting from expected charges related to the MicroFrance integration and the business realignment we announced today. We continue to expect adjusted SG&A to be between 42% to 44% of sales.

In the third quarter, our adjusted EBITDA margin was 21.5%, up 450 basis points over the prior-year period, driven by the aforementioned higher gross margins and leveraging of our SG&A expenses on higher sales. For 2014 we are expecting approximately $62 million in combined depreciation and intangible asset amortization expense. We are still evaluating the purchase price accounting for the MicroFrance acquisition, which could impact our projections for amortization expense.

Cash interest expense was $4.1 million in the quarter. We expect a total of about $15 million of cash interest expense and approximately $22 million of total interest expense in 2014. Our reported effective tax rate for the third quarter was 15%, for the full year we expect our reported tax rate to be between 23% and 24%, consistent with prior guidance. Our adjusted tax rate was 31.9%, as compared to 28% in the prior-year third quarter. We continue to expect our adjusted tax rate for the full year to be between 31% and 32%.

Turning to cash flow, we generated over $31 million in operating cash flow in the third quarter. Our capital expenditures were about $9 million during the quarter, resulting in a free cash flow of $22 million, and a free cash flow conversion rate of about 89% for the quarter and 34% for the trailing 12 months. These cash flow metrics were better than our expectations for the current quarter and year-to-date, and we now expect to exceed our full-year target of a 10% free cash flow conversion rate.

The increase to free cash flow of $4.7 million over the third quarter of 2013, was largely a result of improved net earnings, working capital and lower capital expenditures, most notably for the ERP system and our new regenerative technology manufacturing facility, both of which are nearing completion. While our year-to-date free cash flow performance has been better than expected, we are still maintaining our full-year operating cash flow guidance of between $60 million and $80 million, as we are expected to have additional cash impacts related to the portfolio realignment activities. We expect capital expenditures for the year to be between $40 million and $45 million, which is down from our prior guidance of $45 million to $50 million.

Let me wrap up by providing an update to our guidance for the final quarter of the year. Consistent with historical trends, we expect both sales and adjusted earnings to be up sequentially. However, for the reasons we have discussed in our segment review, we believe we will come in at the low-end about our revenue and earnings guidance range for the full year. I will now turn the call over to Pete, who will provide some additional insights into the third quarter, as well as provide an update on our strategic initiatives.

Pete?

Thanks, Glenn, and good afternoon everyone.

Before I discuss the spinoff of the Spine business and the portfolio realignment, let me take a few minutes to talk about our third quarter and year-to-date accomplishments. In the third quarter were made significant progress on a number of our strategic goals for the Company.

Last week we announced the closing of the MicroFrance acquisition. The addition of MicroFrance, we will be able to leverage our sales and distribution channels with a broader set of instruments, while adding manufacturing, global R&D and European sales at a service and repair infrastructure. This acquisition enables international expansion and also balance growth opportunities in Specialty Surgical, mainly with ENT instrumentation used in the acute care setting. At our Investor Day meeting in May, we outlined our strategy to increase growth, optimize our business and improve our overall execution.

Starting with accelerating our growth, we are on track to complete the diabetic foot ulcer FDA submission, and to finalize our publication strategy by the end of this year. We plan on releasing the data via a peer-reviewed journal in mid- to late 2015. As previously communicated, we anticipate a US launch in the middle of 2016.

We have also made progress in our growth strategy, through the launch of a reverse and total shoulder system. With respect to our shoulder launch, we saw acceleration during the third quarter and are continuing to increase our distribution through the end of the year and into 2015.

At this year's north American Spine Society, or NAS meeting in San Francisco next week, we will be launching our newest OrthoBiologics implant, an engineered DBM strip that is shaped to accommodate additional graft material and has are osteoinductive potential. This, coupled with our market-leading portfolio of OrthoBiologics, positions us well for accelerating growth.

With respect to the optimization strategy, we're pleased to announce the FDA completed its inspection of the manufacturing facility in Anasco, Puerto Rico and found that the company had addressed the issues raised in the warning letter and previous observations. With the anticipated year-end closing of the Andover, UK facility, we're moving beyond the quality issues that occurred over the last several years.

Our strategic objective regarding execution is also advancing. As we discussed last quarter, the DuraSeal integration is achieving its targets. We recently consolidated the DuraSeal US sales efforts into our direct neurosurgical sales teams.

Outside of the US, we are continuing our efforts to optimize our global footprint, with the right mix of direct and distribution structures, and also remain confident about the long-term growth and competitive positioning of our Dura Repair franchise. The intellectual property rights around DuraSeal visualization, which is really the use of color in DuraSeal to distinguish the extent coverage of the sealant, and our clinical data supporting a lower risk of swelling for DuraSeal Exact, provide a competitive advantage for us in the marketplace, giving us confidence that we can project our existing franchise and continue to penetrate the fiber and sealant market.

To close on the quarter, I believe we are at an important and exciting inflection point. We have been thoughtfully executing the strategy we laid out a few years ago, and with the changes announced today, Integra will have a more optimized structure, focused investments and enhanced capabilities to execute consistently and accelerate growth. With this transition, we are positioning ourselves to drive above-market performance for the coming years.

With that said, let's now discuss the proposed spinoff and portfolio alignment details. Please take a minute and pull up the slide deck we are posted on our website. We will be starting on page 6. I will give you just a few moments to locate the slides.

So on slide 6, before we get into the details, I want to spend a few moments reviewing the strategy laid out at our October 2012 Investor Day. It has been a productive two years, not without some operational setbacks, and the team has been very focused on transforming Integra into a more streamlined and agile Company.

The strategy is simple. Execute on key initiatives that optimize our portfolio and scale the business to enable accelerated growth in focused segments where we can be relevant in tomorrow's healthcare market. The moves we are making today mark a key milestone in focusing the portfolio and our areas of clinical expertise.

So moving on to slide 7, we are on track to achieve the initiatives laid out in 2012 and we have made significant strides to transform the business and position Integra to win. As demonstrated on this page, we have a number of examples outlining our progress: success in addressing quality issues, closing several manufacturing sites and entering the final stages of validating our new regenerative technology facility in Plainsboro, New Jersey.

On the optimization front, we have implemented a common ERP system on which 75% of the Company is running and reduced the number of systems from 27 to 13. This initiative will largely be completed by mid-2016.

In addition, we committed to making decisions about where to invest our researchers going forward and to rationalize our portfolio accordingly. That decision has been made and we are focusing on the three areas, especially Surgical, Extremities and Wound Care. In order to execute on that focus, we are planning to spinoff the Spine business as an independent company.

Lastly, accelerating growth, we have laid the foundation to enable expansion, support a multi-billion dollar business and achieve our five-year profitability goals. We continue to make strategic acquisitions that drive Integra's overall strategy. The DuraSeal transaction in January and the acquisition of MicroFrance in October, strengthened our foothold in Dura Repair and minimally invasive surgical instruments, while providing a new access point to surgical ENT. These additions help solidify the foundation of our business, positioning us better to accelerate growth in Specialty Surgical Solutions.

As well we remain focused on new product development, having doubled our annual product launches since 2012. We are especially optimistic about the potential market opportunity for DFU. I am proud of the progress that our teams have made, but our work is not done.

Turning to slide 8, the transformation continues as evidenced by today's announcement. We see opportunities to grow in the Spine business and believe that the OrthoBiologics platform will help capture additional market share. After a thorough and strategic review, which included a range of potential options for this part of our business, we concluded that a the spinoff is the best option for our shareholders, employees, and customers, and will maximize the benefits to both Companies, Integra and the new Spine Company, which will be named SeaSpine.

This form of separation will enable both organizations to grow faster separately than they would together. Both will have strong balance sheets to invest in a full pipeline of organic and inorganic opportunities to accelerate growth. With good progress in quality initiatives and operational efficiencies, Integra is well-positioned to execute this separation and achieve its communicated goals of margin improvement and free cash flow acceleration.

This strategic move results in a pure play Spine company and a simplified, more focused Integra. As previously mentioned, we believe both companies will grow faster independently than they would together.

So let's go a little deeper into the strategic rationale for the planned spinoff. If you would now turn to slide 9, the contemplated spinoff of the Spine business is part of a larger move to realign the Integra portfolio. Specifically, we are integrating our current of five business divisions into three. And following the spinoff, Integra will have a simplified two division global structure; neurosurgery and instruments will be combined worldwide to create a new division called Specialty Surgical Solutions. This will consolidate all of our service-based offerings into one division enabling scale and growth opportunities.

Orthopedics and tissue technologies will be consolidated worldwide and will include the Extremities business comprised of Small Bone Orthopedics and wound care, along with Private Label. A notable change is that we will no longer look at international as a separate reporting segment; rather we will run each business globally, looking at both domestic and international sales. We will continue to invest in and operate an international commercial structure, enabling a consistent approach for our OUS customers. As mentioned in the press release, Dan Reuvers will continue to lead the international commercial channels.

Moving to slide 10. The proposed separation will result in an $800 million Integra, focused on regenerative technology solutions and complete product portfolios to address the clinical areas of Extremities, Wound Care and Specialty Surgical, and the new SeaSpine, which will be a $140 million company, dedicated to regenerative technology in OrthoBiologics and a full suite of differentiated spinal hardware implants.

On to slide 11, digging a little deeper into the benefits of the transaction, for Integra, the spinoff will enable the organization to focus on scaling three key areas: one, specialty Surgical Solutions, where we enjoy a leading market share in neurosurgery and surgical instruments, and where we are creating new growth opportunities such as ENT and services.

Two, wound care, specifically leveraging our leadership position in burns, to extend our reach into the broader wound care market, where we can take advantage of our differentiated regenerative technologies and channel. For example, we plan to expand into the diabetic foot ulcer market with our new DFU product line.

And three, Extremities, Small Bone Orthopedics, where we will focus resources on optimizing our commercial organization, developing new products, both metal and regenerative technologies, and driving successful market share gains. A good example would be the expansion of our shoulder line and the future two-piece ankle for the US market. As for the Spine business, the new SeaSpine Company will be better positioned to win as a pure play, because it can focus on driving sales and investing earnings and enhancing its R&D pipeline, sales structure and surgeon training.

Because of Integra's focus on revenue growth and margin expansion, we believe we have invested less in Spine compared to our key competitors, thus moderating growth. While the Spine business runs profitably in our hands today, as a separate company, the new SeaSpine will have the ability to reinvest a higher portion of margin dollars in the growth programs.

Moving on to slide 12, we have talked a lot about the fact that both Integra and the new SeaSpine will be leaders in providing regenerative technology solutions. This was the very foundation upon which Integra was built 25 years ago. Our innovation, and resultant commercialization, has graded a sustainable competitive advantage and one that both public companies can continue to leverage and advance as separate entities.

Our Dura Repair, Skin and Wound and OrthoBiologics product franchise, comprise a significant portion of the revenue base and have grown faster than our overall top line. Further, we have market leading positions with differentiated technology and strong pipeline opportunities in each area.

I'm now going to walk through the business overview of Integra in light of this new structure. If you now turn to slide 14, to the slide titled Spine Overview - The New SeaSpine, going deeper into the Spine business, Spine is largely US focused and split between hardware and OrthoBiologics. We see a significant opportunity for the new SeaSpine to capture share in the $5.3 billion market. The product portfolio offers a complete and market-leading OrthoBiologics franchise, unique interbody devices, differentiated minimally invasive and deformity solutions and a full line of fixation sets that address the needs of the Spine surgeon along the full length of the Spine.

On to slide 15, we announced today that Integra's Board of Director plans to name Kurt Stevenson, former President, CEO and Cofounder of the original SeaSpine, to the role of Chairman in the new SeaSpine Company. As well, we have engaged Spencer Stuart, an executive search firm, to identify the new President and CEO to lead this new organization.

In addition to the strengths within the existing product portfolio, the new SeaSpine will be able to focus on R&D and commercial activities differently, improving speed to market, and thus increasing the impact of new product introductions. We have not concentrated resources on expanding Spine in OUS markets. There's a significant opportunity to direct investments internationally, which could have a meaningful impact on topline growth.

Finally, the new SeaSpine will be able to invest more of its sales efforts, such as increasing the number of programs to train distributors and surgeons. These efforts help to capture market share within existing accounts, as well as to attract new ones.

Now on slide 16, let's discuss what Integra will look like in 2015, and we will start with the Specialty Surgical overview. In terms of Specialty Surgical Solutions, we are focused on leveraging our market-leading positions in neurosurgery and instruments to build a strong platform from which to drive sustainable growth. Our strategy is three-pronged and includes, one, expanding our neuro footprint with specialized instrumentation; two, selectively extending our reach into near adjacencies such as ENT, MIS and tissue removal; and, three, leveraging our strong global distribution channels.

Today's organization has strong presence in the OR, outpatient surgery centers and the ICU. The sales channel has significant reach with a two tier model of direct reps and specialized product support teams.

Further, the business has established relationships with GPOs and IDNs that can be further leveraged with our enterprise selling efforts. We also have the opportunity to develop a broader services offering in this business area, such as multi-year service contracts and value-added programs to help customers optimize their departments. Bob Davis will lead the this newly created division.

In our second business area on slide 17, Orthopedics and Tissue Technologies, Ortho and Tissue Technologies will include our Extremities Orthopedics, Wound Care Technologies and our Private Label business. We currently participate in just a fraction of the $3.5 billion total addressable market and we plan to capture additional share with three focused initiatives: one, new product development. Specifically we are entering the chronic wound market with our DFU indication, and we are focused additional product introductions within our Extremities business. Two, investments in our sales force in order to ensure success, including an expanded presence in both Wound Care and Extremities. And three, focus on the clinical evidence and education to drive greater utilization and mine share.

This area of our business has a very robust pipeline of organic opportunities for clinical and R&D investments to open up new avenues for growth. Mark Augusti will have global responsibility for this division. Both of these business areas, Specialty Surgical Solutions and Orthopedics and Tissue Technologies, also have significant business development opportunities for tuck in acquisitions.

I will now turn the call back over to Glenn to provide some additional details. Glenn?

Thanks, Pete.

If you could please turn to slide 19, with regard to the details of the plan separation, we expect to structure the transaction and the distribution of the publicly traded stock of SeaSpine to be tax-free for Integra shareholders. We have created a program management office and we have already identified key individuals to the project forward to ensure successful completion of all separation activities.

Kurt Stevenson, who will be named chairman of SeaSpine when the spinoff is complete, has been heavily involved with this team. There will be typical one-time charges related to the separation and we will be providing regular updates through the date of the spinoff. Notably, the transaction will not have a significant impact to Integra's 2014 adjusted results.

We expect both companies to be well-capitalized with strong balance sheets and thus have the flexibility to invest for growth. We are confident that both companies will grow faster separately then together and the transaction should be accretive to the operating margin for Integra. The transaction, which is subject to final approvals and successful filings, is expected to be completed within 12 months.

We anticipate filing the registration statement for the new SeaSpine with the SEC after we have completed the annual audit for Integra in 2014 and filed the 10K. At that time, will be provide to provide additional financial and legal information about SeaSpine and discuss the financial impact on Integra.

In closing, we direct your attention to the summary slide. We are excited about the opportunities for both standalone Companies, and believe these proposed plans enhance value and offer numerous benefits for customers, our colleagues and our shareholders.

The spinoff of SeaSpine and the creation of the Specialty Surgical Solutions and Orthopedics and Tissue Technologies divisions, mark the continuation of our strategy to transform Integra and deliver on our five-year plan to improve margins, free cash flow and overall growth. With a simplified structure and a focus that will result from operating two integrated global franchises, Integra will be well-positioned to become a multi-billion dollar global medical technology Company.

Thank you all for your patience, we appreciate the fact that we are announcing a lot of changes and have allotted some extra time for Q&A. With that, operator, please open the line for questions.

Thank you.

(Operator instructions)

David Lewis, Morgan Stanley

Good afternoon, David.

Good afternoon, this is actually John, checking in for David.

Hello, John.

So your analyst day was about six months ago and I was wondering what changed from that point to now? You seen fairly significant changes in the business. And I'm just trying to figure out if it is something externally with the environment or if it is something just more internally as you went through more of the planning process to see that this was the most optimized structure moving forward.

Yes, John, that's a good question. As we mentioned even back in our session back in spring, we have really been looking at our broader portfolio and we have been assessing it for little over a year at this point in time. Much of it started with taking a look at low hanging fruit, such as removing SKUs that are not hitting the thresholds that we look at. We have also been broadly having this discussion about, with the healthcare environment, where we want to put our focus and, candidly, our overall resources, both dollars as well as people.

One of the main areas that we have talked about is that we have three areas of the business that haven't been at scale, scale becoming more important. Those three areas have been the Spin business, our Extremities business and our Wound Care area. We have openly talked about the fact that we believe we have the bandwidth and capabilities to really focus and grow two of those really well.

We have been going through process to think this through for quite some time. As we looked at this, as well, we believe that the Spine business as a standalone operation, being measured primarily in its ability to grow revenues, on being a profitable entity, we will be able to invest significantly more of the profit into growth initiatives and in many cases, then meet most of the prior criteria we have laid out.

Thank you. That's very helpful. The follow-up I had was more on the thought process of bringing international in. I guess it was split back out in between the two segments.

I think I recall a few years ago, international was more looped under of the segments as well and I thought the reason for separating it was because that was going to be the way to focus more on international and drive growth. So, kind of similar question, what changed in that environment that you think that international is better to be served in each of the individual verticals?

Yes, John. I would say, we have always run the business with international, the components of it separately, except for when we were very small and it was integrated. So really, since I have been in the role, we have run it as a separate entity.

The focus on it is pretty simple. The organization and the infrastructure we have will not change, in fact we are going to invest and add to it. The reason for this is our ability to focus.

Part of the change of the divisions is the alignment of the plants to each of the business, the planning organizations, the quality teams. And a big chunk of this is about increasing our speed to market on new products, our speed to react to customers.

We are never going to be the biggest player in the market, but we can be one of the most relevant in the market segments that we play, and we could move faster than some of our largest competitors. This move is specifically aligned to do that. When it comes to international, it's to be able to take greater resources, candidly, we have in the US and also have them leveraged around the world. So that's really what the intent is, that the focus, as well as to be able to put more energy behind our international expansion plans.

Understood. I will jump back in queue. Thank you.

Thank you.

Larry Biegelsen, Wells Fargo

Good afternoon, and thanks for taking the questions.

Pete and Glenn, maybe if you could just give us a little bit of color on the topline growth of the Spine business you're divesting. I assume that is probably declining, low-single-digits and the margin profile, it sound like it is below the corporate average. So maybe low teens operating margin, is that a fair way to think about it?

Yes, Larry, it's Glenn. Relative to the Spine business, we are not going to provide any specific commentary relative to the topline or even the bottom line. What I will tell you is, the most we are making today, and the transaction is really meant to accelerate and grow both Companies faster separately than together. And we do expected it to be accretive to the Integra operating margins.

The reason why I say that is, keep in mind when we report our US Spine and other segment, there other parts the Spine business that show up in other segments. So we have an international portion of that, international Spine sales showing up in our international segment, we have Private Label sales with OrthoBiologics. So at this point in time we are not in a position to share with you the growth when looking at all the pieces of that business, other than to say, we're moving forward with the spinoff in order to accelerate growth for both of our companies.

Pete, maybe could talk about how the divestiture impacts the long-term top and bottom line growth goals that you gave your analyst meeting, the 5% to 7% and the EBITDA target.

Probably, Larry, without going into specifics, we believe these are online with our longer-term plans to help achieve those overall goals. We think from our capability of our core business to grow within that 5% to 7%, obviously our Extremities and our neuro business, those areas.

And now when we bring neuro and instruments together to create this Specialty Surgical group, we think we are going to have actually some new areas to move to. So ENT, as we have talked about before, are growth opportunities that kind of bridge in may case between neuro and our instruments world, we think we have technologies in other near neighbors.

I feel quite good about that. And look, when it gets to, relative to our profitability standpoint, Spine obviously is a question or part of that. But probably the bigger part about meeting those objectives is a lot of the plans that we have implemented.

Our facilities plans, the work that we have done with sourcing, some of the new products that we are bringing into the market that are driving stronger mix. This quarter our skin business continued to do well, we had a new launch with the project ThinSkin, which drove up the mix. So all these things come together to help.

I would say the biggest part on this for our plan, is really our ability to focus on some key areas to put more energy, more intellectual capital around a smaller set of market segments. At the end of the day that is the key thing that will really help us grow.

Let me just ask one more question and I will drop. Can you talk about the thought process behind spinning off Spine as opposed to selling it? Because I think, spinning it off, it is a relatively small public company, I would imagine it would add some significant public company costs to it.

And then I would drop. Thanks.

Larry, I think we looked at all types of options, from keeping it for the long run, to looking at different scenarios. But when you take a look at it, and particularly other competitors in the marketplace that are of similar size, that you can actually get a good feel how those companies have done, how they have been able to put a higher percentage of their profits into growth initiatives, which we could model out and understand that they would drive similar returns for us. We thought it was clearly the best way to go.

When you have a distribution structure, you have other types of organizations. The disruption that results in, not only when you look at selling the business, when you look at buying certain Spine assets, the channel can be fragile. I think the great part about a spin is that the distribution structure is intact and can be focused on growth, the employee base is intact and can focus on growth. We can actually add more folks and invest.

It was actually a pretty easy decision when we stepped back and looked at it. I would say not every segment that we are in, you would consider these same type of inputs. I think Spine is kind of different that way, so it made a spin a more logical choice when were all done with the analysis.

Fair enough. Thanks for taking the questions.

Thank you.

Matt Miksic, Piper Jaffray

Hello, thanks for taking our questions. So, one on the Spine business obviously.

I just wanted to understand your comments you have made them a couple of times now in the call, about the difference in Spine and the need to invest in growth. And I am trying to understand, is that cash investment in working capital in instruments to push out the systems and accounts? Or is that something more?

And to what degree that has to do with this unusual split that you have in the Spine business, which is closer to 50/50 Biologics and hardware. Traditionally in a Spine business we would see more like a 75/25 in favor of hardware.

It's Pete. A couple of things.

One is, there is a high-level question among multiple segments that we have Integra that we're clearly all running for growth and profitability. Then that obviously has an effective of how much money one can invest in a given business. That is part of the answer.

The reality of it is, I would say we know we have more ideas in R&D, particularly in metal, that could be invested in programs that we know would deliver quality results for implants. When it comes to clinical programs, types of specific field-based clinical work, we know that that would support and allow us to bring on more distribution and expand our network.

Then the last part of your question about OrthoBiologics, fundamentally the OrthoBiologics piece, it does open up that business. We have a Private Label business that is based on just de-mineralized bone in OrthoBiologics, that will be part of the Spine business as well. And it will enable this Company to go after more broader Private Label customers as well.

It is a little bit of both, there is some capital, there is some expense, but the bigger part is how we believe this Company will be viewed on growth that we will be able to invest in a higher percentage of the profits back into those things I outlined earlier. Glenn you may want to add a few comments?

Pete, I think you hit on all of the relevant topics. Obviously expecting to see some increased investments around sales, distribution and surgeon training, would be an area of focus.

Also investments outside the US, we think that is a big opportunity for the Spine business that really hasn't been a tapped market to date and I think there's opportunity to make additional investments outside the US and really realize some growth there as well. Those would be the other areas I would highlight.

That's helpful. It sounds like focus really basically, just focusing on those growth opportunities.

The second question on Extremities, you had talked about the strength being driven by Skin and some of the Biologics side of the Extremities business that you have. Can you give us a sense of how the metal side is doing or any sort of dynamics relative to market, procedure trends, anything that would give us a broader unobstructed view of what was a pretty strong quarter but driven by about Biologics.

I would say, just to balance the question out, our skin and regenerative platform clearly was the strongest leader, but we actually had a nice recovery within our lower Extremities portfolio and metal. So we brought in our new foot system we talked about last quarter. We actually increased, filled a few open territories and lower -- those all had a strong impact.

Our upper areas, as far as our hand and wrist products, all performed well. I would say, across the metal line, there weren't significant big upswings, but they were all strong performances. In particular I think the main call out would be, we actually had a poor quarter in Q2, relative to lower and that rebounded within Q3. The shoulder continues to be on track for the plans as well.

I think, Glenn, did I miss any of the points?

No, pretty much across the portfolio, as I mentioned in my prepared remarks, we saw a growth in all areas, mid-to high single-digit growth in most of the hardware areas, especially upper shoulder on track. And again, we are expecting to see further increase in shoulder sequentially in the fourth quarter as well to further drive the Extremities growth as we get into fourth quarter.

(multiple speakers) Really for Extremities, across the board, it was a good quarter. Again on the Skin side, in particular with this introduction of this ThinSkin product, which is really a first product for us to address the second degree market, most of our products focused on third degree burns. We continue to see strength in that area, as was the traditional products as we expand. It was a nice effort, and one of the areas that we will continue to focus on and a key growth driver for the Company into the future.

Chris Pasquale, JPMorgan

Thanks. Pete, I don't think the decision to do something with Spine comes as a big surprise given some of your past comments about that business. But how do you think about the fit going forward of the Specialty Surgical and the Ortho and Tissue businesses? What are the synergies between those two divisions that you are realigning into today that makes it better for them to stay together instead of just going a step further here and splitting the Company into three distinct pieces.

The first thing is, is that our regenerative platform which is our collagen capabilities, the new plant we're building that supports things such as Dura Repair, it actually has capabilities to do all of that. That is the glue between the two. As I brought in a new Chief Scientific Officer, just about a year ago, we've got an extended focus really on technologies and things that bridge the two of those. Even in our instruments area, we sell certain types of collagen-based products into the alternate site market.

So there is actually a pretty good cross-fertilization between those two, from a technology standpoint. That would be one.

And I would say the second part of it is, as we actually grow and expand in today's healthcare world, we are actually making some pretty good strides from an enterprise selling approach. Being able to represent different product lines, being able to call on the executive suite and be able to bring those together.

We think that with this focus and the areas where we can be highly relevant and be a leader in these certain areas, that we can bring a lot of value to the combined Company. We still very much believe that the diversified model, in this new healthcare environment, makes a lot of sense. But in that diversified model for us, that we need to be relevant in those particular areas. And so, again, that's kind of the focus that we have been going after for the core Integra is to think about it that way.

Okay that's helpful. And adjusting to understand the margin profile of the SeaSpine business. Are you talking about it being the spending accretive to operating margin? I would think at the gross margin line that this would be one of your higher-margin segments, particularly since you are keeping the Private Label piece.

So can you provide any color on how this Company is going to look from a margin perspective? How dilutive the transaction might be? And particularly, once public company expenses are layered on, whether you think SeaSpine can be profitable on a standalone basis?

Yes, Chris this is Glenn. At this time we are not going to provide any specific financial details of that business.

We still have to go through the carve out of the three-year financials, which will be included in part of the form 10, roughly in the March timeframe, which is when we will be able to better comment on the financial impact of some of the things you are talking about, and what the margins of that business look like, what does that business look like standalone with public company costs.

We are not at a point in time where we can discuss that. So we are going to have to wait for some period of time before we can provide you that information.

Am I right at least that it is a high gross margin business?

Our Spine business has obviously been, as any spine business is, one of the higher gross margin businesses, so those things have not fundamentally changed.

Okay. Thanks. Look for more details later.

Raj Denhoy, Jefferies

Hello, good evening.

Hello, Raj.

I wonder if I can ask one model question. The $920 million to $940 million guidance for the year, does that now include the MicroFrance and Xomed acquisitions? How much of those in there, if they are?

Yes, it does include the MicroFrance acquisition. Just keep in mind it is two months of results. We are expecting very little revenue, probably around $1 million or so.

The reason why it is so low is, we are working through and making sure we've got a smooth transition with our customers. And part that is entering into a transition services agreement with Medtronic where the inventory that is currently in the distribution channels, will be recognized by Medtronic until it is sold through. So we are not expecting much of a pickup at all for the revenues for that MicroFrance business, so therefore it is included in our guidance but it is very small.

Okay, that's helpful. And then on the Spine transaction as well, it sounds like there's some collagen assets or expertise that are going was SeaSpine. You mentioned the Private Label and they also have some other collagen products as well. I'm curious if there are actually assets that are being transferred with them or will there be some shared services between the two companies for period of time?

Raj, just to clarify, and maybe you're using collagen for regenerative. They are fundamentally -- the business that will go with the new SeaSpine is the OrthoBiologics business which is primarily de-mineralized bone, human tissue products. There is some level of collagen synthetic putties that will go with that business.

All of the other Private Label, as well as collagen-based business, skin-based business, all of the things that were made out of the collagen matrix will stay with the core Integra. So that is just one of -- how we want to think about the definition of the two.

Okay. And will there be any continued cross-selling of the various products? Will the SeaSpine reps still carry any of the Integra products, or will it be a complete split between the two?

As you can imagine, it is still early to determine, but obviously do we expect certain shared services, certain components being made by the mothership for the Company, having certain DVMs or access for the Extremities business to be able to sell? Yes, I think those are all things that we would expect that there would be the type of appropriate type of items that are there.

Keep in mind, the channels actually quite discrete. The Spine business and OrthoBiologics is quite a separate channel from any of our other channels. So there is not much overlap, but of course we would expect some shared service capabilities between the two.

Okay, that's helpful. And just one last one on Extremities business, there was obviously a large transaction announced between the two large competitors there Right and Torney. Any thoughts about how you might benefit from that or if you are seeing anything at all at this point yet?

Raj, really no comment. Obviously it only happened just a few days ago, so we have not seen much in the marketplace, they are both strong competitors and we will continue to compete with them as we did. There is not much overlap.

From our perspective we will compete on them with shoulder, we'll compete in upper, we'll compete in lower as we always did. I don't think it really changes the dynamics in the market since there's not much overlap the product portfolio.

Okay, thank you.

Steven Lichtman, Oppenheimer

Hello, guys. So, Pete, just on the new Specialty Surgical business, will this be an area we your enterprise efforts will be focused looking forward? Can you talk about how you will be able to bundle across that division? You hinted at this earlier but based upon your discussions with the c-suite so far, and your enterprise selling effort, how do you see that business being able to pull through, maybe Extremities in the new Integra?

I think the first part is with the Specialty Surgical, is obviously the ability to have an IDN and a GPO calling or selling organization. And then also have clinical sales capabilities that, for a subset of certain products that really need detailing, you can get to the doctors, you can get to the executive suite.

So many of those products now are kind of tied in that organization and we can leverage that common group for contracting and capability. So that is there. To your point, it does bring our top shared businesses all under one roof and actually then allows us to better focus on certain areas.

I would just say, on enterprise, as our strategy has been, it has been to look at all of our different product lines and see where we actually have a strong position in a given IDN and be able to use that to introduce, both clinically and also at the c-suite, our other product offerings. Really this alignment into these two kind of divisions, is also to put us in a better situation to be more agile and quicker to respond to needs of some of these systems. And again, as we look at our competition in the marketplace also increasing in size, our ability to again be focused on certain product areas but also be more agile is really what this move is about.

Great. And then on gross margin you saw another improvement in the quarter here sequentially, you called out mix as a driver. To what extent are some of the initiatives having an impact yet? Or is that still more to come in the future quarters?

I will comment on that and then I'll let Glenn as well comment on it. I would say that for the most part we are seeing a good effort related to mix. Some of the initiatives we obviously had were on new product and focus.

As it relates to some of the cost initiatives, I would say that they're clearly having an impact. But in many cases, at this point, they're still offsetting other costs that we have within the system.

So as we get more of our operational efficiencies and things behind us, we expect for them to have a bigger benefit. I think an example would be with our last two facilities that we're transferring and closing down. That will happen at the end of this year and we will start seeing some of those benefits going into next year.

At the same time, an initiative such as a new plant and an ERP system, also bring some significant new costs. So many of these are starting to offset each other and mix in volume growth is really what is kind of standing out at this point in time.

So just to add to that, Pete, obviously very happy with where our margins are. A lot of it had to do with the work that has been done to-date around facility, consolidations closing, the strategic sourcing programs that we've been doing across the Company to optimize spend and so forth.

But, as Pete mentioned, as we get into 2015, we are going to have some headwinds so we are going to need to continue to see operational improvements to offset some of the headwinds. As an example, we are expanding about an $8 million dollar increase in costs relative to our new manufacturing facility in Plainsboro. And we've got about $4 million of incremental ERP costs. So in total, $12 million next year of incremental costs.

The improvements that we are making now, we need to make sure can help to offset those headwinds we have next year. So, just be a little bit cautious relative to expectations going forward for continuing ramp of our gross margins given some of those items I mentioned.

Having said that, we're still well on target for the long-term objectives we laid out at the investor meeting. So on target for the long-term goals but just be a little bit careful relative to 2015 and how you think about the continuation of our margin expansions.

Jason Bedford, Raymond James

Thanks. Just a couple of quick ones. Glenn, the numbers that you just mentioned, the $8 million in new manufacturing costs, or costs related to the new facility, are those incremental on top of what we have here in 2014 or is there an offset?

They are incremental because keep in mind as we transfer products from our existing facility in Plainsboro to the new facility, we have essentially two facility costs -- duplicative costs with the same level of volume for some period of time. Our plans are to ramp up the volumes as we get to the back half of 2015 and 2016.

Initially we are going to have double the costs, if you will, as we go through that product transfer between our old facility and our new facility. So it clearly is incremental for 2015.

I would just add, Jason, you've seen some of the locations, some of the PMA products will take two years plus to transfer. This year the ops team has done actually a very good job in really our regenerative facilities, but all of our locations, in getting our yields up and that is providing some nice tailwind in different quarters here throughout the year.

Then, as Glenn had commented on, we will actually start taking production out of 105 and putting it into our new facility, 109, and you will have two locations that are not at capacity. So we will have some more overhead that is actual going through cost of goods. That is really where that $8 million comes into play.

Got you. I appreciate that.

And getting back to an earlier question, Pete, I always thought your Spine business actually benefited from DuraGen. Can you talk about the interplay between DuraGen and Spine and do you not think the standalone Spine business will lose a little from the start without having the benefit of the DuraGen asset?

I would just say, Jason, we have always sold, really in the last few years, DuraGen very separately -- separate channel without much overlap. There is obviously Spine surgeons that will use product. But we really never had a lot of, I would say, linked sales or combined sales that way. The distribution networks were always very discrete and there has not been that much overlap. So I would not expect to see a lot of impact from that.

I think, the question might be from enterprise selling, is the leverage lost in enterprise selling? There could be. The other option is, there is no reason that, from enterprise selling standpoint, our Spine products of choice, when we actually take a look at a large deal, won't be SeaSpine.

I think down the road, as we start doing more and more of these kinds of clinical based deals, partnering with other companies is going to be a way of life. And when it comes to Spine or any of those products, SeaSpine would obviously always be our preferred partner.

Right okay. I'll get back in queue. Thanks.

Glenn Novarro, RBC Capital Markets

Can you hear me okay?

Loud and clear.

Pete, I'm just trying to get a sense for the longer-term outlook for new Integra. So old Integra, your revenue goals where 5% to 7% and I believe EPS goals for kind of low-double digits or low teens. Just broadly speaking, should we think longer-term, that once the split occurs the new Integra should be revenue growth of 7%, if not better, and earnings maybe midteens, just whatever type of guidance or commentary you want to provide is my first question.

Yes, Glenn, obviously we will be providing a 2015 guidance in February as we normally do. I would say, again, when we've laid out our strategy, our five-year plan, we have taken a look at cost savings of things, such as the plants. We have looked at optimization, the IT system and how it will change the way we work. Our structure changes were part of that, these two divisions were part of how we will run to be more faster and effective.

We have always had a portfolio optimization piece as part of our long-term plans. Figuring out where we will put more funds, where we're going to do some things differently.

So I would say, this really gives us increased confidence to achieve our stated topline goal, which is the 5% to 7% growth longer-term. It increases our over confidence to get there. Obviously our first goal the next couple of years is to get north of 5%. I think the other aspect is, we have looked at our EPS accretion and our growth to be able to get our EBITDA to 24% over our planning horizon as well as to get our operating margin north of 20%.

We have thought about how it would get there and, in many years we have some uptick, some of that benefit we need to reinvest back in the business. So having a 10%, roughly, EPS growth in a plan is something we've thought about, having it consistently, having that is our view.

If you think about even going into next year for us, outside some of the expenses that Glenn mentioned, we have some really exciting investments that we're going to be entering into as well. We will start beginning building out our channel for DFU for our launch in 2016. We are going to be increasing our investments in the international segment and that is how we see -- with more channel investments, more capabilities there, that is how we see more international growth coming. We have a lot of those things in place and really what this does is help actually give us greater confidence that those longer-term goals that we have laid out, we can achieve those.

Again, when I think about it, our 5% to 7% growth and roughly about 10% EPS growth is something that we are targeting here as even we go into next year, because of the combination of the investments. Those are really the two key metrics that we say, even with all of these moving parts, we feel quite good about that that we can achieve.

Perfect. That's a great answer.

Just one quickly, next year at some point there is going to be a separation cost associated with the split. I'm sure at this point you don't have a feel for what the costs will be, but when you give guidance in January or February will he have a sense?

And how will you account it? Will you account it as part of ongoing expenses and earnings or will that be called as a one timer?

Hello, Glenn, this is Glenn. In our 2014 adjusted earnings and our GAAP earnings, we have factored in some of those costs hitting in 2014, probably about $2 million to $3 million. That is one of the reasons why our GAAP guidance is lower.

When we get into 2015, on the February call, we will give you an update on the rest of the rest of the picture relative to how we see those transaction costs being for the rest of the spinoff. We will adjust those out of our earnings in will be very clear relative to what those charges are, but we are anticipating adjusting those out of our numbers.

One last, MicroFrance, Glenn, did you provide what the contribution would be for 2015?

Roughly $0.10 of accretion to our earnings per share.

Okay, thank you.

Matthew Taylor, Barclays

Thanks for taking the question. I want to clarify one thing about the spin relative to your longer-term margin goals. Can you help us understand what the spin makes easier or more difficult in terms of your ability to obtain the margin expansion goals, if anything if you can parse that out?

Well, Matt, I would just say at a high level, because obviously, as Glenn commented, we can't give you specifics until we get the form 10 in. But think from our strategy standpoint, obviously the first part is just focus and the ability to focus on key areas where we believe that we actually have the abilities to leverage the growth at a higher point. More focus on Extremities, more focus on Wound Care.

Then this ability to actually expand into near neighbor adjacencies within Specialty Surgical. I mentioned ENT, we actually have some different ablating technologies, we have some other sealant technologies, so there's a lot of interesting areas within there. So again, from the plans, really the focus on key areas to kind of enable growth.

Relative to our overall expenses and our expense base, I don't think there is a large impact from the way I think about it. Most of our plants are tied to our existing business. Our Spine business, like most orthopedic businesses, we source of the hardware, we design it, from that standpoint.

So all of the other items, when you think about a lot of our big components there, are pretty much tied into the core business. Sourcing touches all parts of the business, but again our plans thus far have been pretty well equally distributed amongst the different segments.

So the short of it, when you asked the question, is increased focus, increased confidence in accelerating growth and then an area where we can focus on higher mix product, primarily tied around our collagen base. And the number one is the obvious one, which is the launch of the DFU product and the move into Wound Care. Just has a faster profile and a higher mix of overall operating margin from our technology.

So that's kind of how we think it at a high level. Again, I think it gives us greater confidence to achieve our long-term goals.

Thanks. I guess with the new structure for new Integra, can you talk about, in those businesses that you now have and want to focus on, whether you feel like you have the correct scale and the right portfolios to be able to meet some of these growth goals? Or do you need add things or could we see any more any smaller pieces be spun off?

I think the structure that we have, we have thought a lot about it, makes a lot of sense. Are there some product families that we may do something different with, potentially, at a larger level? No, I think this is the key move that we made decisions on.

As I stated in the beginning of the Q&A, our Wound Care business and our Extremities are not at scale. We have got great teams in both of those as part of OTT. We have got some excellent capabilities in our New Jersey facility and are Austin facility, some really talented folks. This will give us more opportunities as well to put higher percentage of investments within those businesses.

I think the other side is both of those business areas some significant organic, as well as inorganic, opportunities for us. We see lots of interesting tuck ins. So those are items that will help us accelerate above the overall topline plan. But from an organic standpoint, this focusing on these areas for R&D and clinical investments, again, gives us greater confidence that we can achieve those goals.

Great. Thanks a lot for the feedback.

Thanks.

(Operator instructions)

Bob Hopkins, Bank of America Merrill Lynch.

This Travis, on for Bob.

Hello, Travis.

Can you give us a little color on the Spine margins, slightly below, materially below your corporate average? Maybe give us a range for were profitability is in the business, even if you don't have exact financials at this point?

Travis, this is Glenn. The only thing I am going to say is that we expect this to be accretive to the Integra operating margins. You can interpret that any the way you like, but that is the only thing we're willing to say at this point in time.

Did you say you how the spin impacts your adjusted free cash flow conversion metrics that you laid out at your analyst day?

No, we did not. (multiple speakers) And we will not comment any further until we actually file the form 10.

Yes, Travis, you might if you catch us or not, we will file the form 10 in (multiple speakers) probably the March time period. Until then, we have tried to give, on the presentation as well as the Q&A, as much data as we could give, but until that time this will pretty much be the financial detail that we will give until we actually make the filing.

Okay, just one more question for me. Last quarter you increased your borrowing capacity by about $900 million, you have done one small deal since then? Can you just talk a little bit on the current M&A environment?

So we closed, we believe a strategic one, which is the MicroFrance deal, which opens up the opportunities for ENT, 2/3 of the revenues are outside of the United States. It creates a really interesting base for expanding our instruments business. So it is small but quite strategic from that standpoint.

I would tell you that our prospect pool is as big as it has ever been. I think when it comes to instruments, neuro, near neighbor products as well as Wound and burn, and as well as Extremities, we have got lots of interesting opportunities. We're quite mindful about the size of the deal, the type of deal and the timing of the deal.

I would say that you will see us, even with this announcement that we made with the spin, we believe we have got the capacity to do also tuck in deals at the same time. And the way we've got the business parsed and we have certain things where we feel pretty comfortable with it.

I am very excited now about those areas, particularly the Specialty Surgical area, the Wound Care area, and the Extremities area for doing inorganic deals. We actually have quite a few things going on, and again, from an ability to focus and scale up, this is all part of our strategy to be able to focus of those three areas.

Okay, thank you.

(Operator instructions)

Bruce Jackson, Lake Street Capital Markets

Just two quick ones. Getting back to the Biologics.

So, you've got the OrthoBiologic product line in Spine right now. Was any of that being sold in the extremity orthopedics group?

Yes, Bruce, there's a small percentage that gets sold into that area. I believe it was Glenn or one of the previous folks that asked the question about, would there be some ability to potentially have some agreements, most likely down the road. We would continue to sell some level of those products by our extremity sales force coming from the new SeaSpine.

But the vast majority of those products, north of 85%, go through our Spine based business. And the Private Label business that is associated with that too, is pretty much all Spine focused.

Okay. Last question, with the MicroFrance acquisition, the revenues I believe were about $30 million -- at a $30 million run rate. Do you anticipate being able to get back to that run rate in 2015 or will there be some deterioration in that revenue?

Yes, first part is there is a little bit of deterioration that comes in and some of that is less about synergies or anything and some is that where Medtronic was direct, we are not going to be direct. So you have a distributor model where we will actually pick up a reduced version of actually the sales value because it is not coming all directly through.

So there is some of that. We're working through some of the transition components now. But we believe that overall that a broader portion of that we will be able to hold onto.

And, Bruce, just to be clear, the guidance we put out there relative to this business, was around $27 million to $30 million for 2015. That would not consider any fluctuations in foreign currency as well, so just keep that in mind as well as you model the 2015 revenues.

Okay, thank you.

At this time we have no further questions in the queue. I would like to turn the conference to Mr. Peter Arduini for any additional or closing remarks.

Thank you, operator. I would like just to take, for everyone on the call, just a few moments just to reiterate a few of the key messages since we covered quite a bit of ground today.

One, we reported third-quarter financial results in line with our expectations and reiterated our guidance for 2014, be it at the lower end of the range for revenues and earnings. And above the range for free cash flow conversion metrics.

Two, we announced a plan to spin off our Spine and OrthoBiologics business to operate as a stand-alone public company and be named SeaSpine. And we believe both companies will grow faster separately than together.

Three, we announced the creation of the Specialty Surgical Solutions and Orthopedics and Tissue Technologies divisions. And our plans for operating under a simplified and focused organization structure in 2015. The result will be Integra operating in two global business areas once the SeaSpine spinoff is complete.

And lastly, Integra is on track to achieving its strategic goals, we discussed that quite a bit on the Q&A session. And our margin improvements targets that we laid out at the Investor Day. We are proud of the progress that the organization has made and we're optimistic and excited about what lies ahead.

All of this is really attributed to one thing, our people, and I would like to thank all of my colleagues at Integra. Without their efforts we would not be in a position to accelerate growth and realize division for our company.

Thanks for listening and we look forward to seeing many of you at the NAS meeting next week.

Ladies and gentlemen, this concludes today's conference. We appreciate your participation.