Angela Steinway - Integra LifeSciences Holdings Corp. Peter J. Arduini - Integra LifeSciences Holdings Corp. Glenn G. Coleman - Integra LifeSciences Holdings Corp..

Matt Miksic - UBS Securities LLC Travis Steed - Bank of America Merrill Lynch Jonathan Demchick - Morgan Stanley & Co. LLC Young Li - Barclays Capital, Inc. Raj Denhoy - Jefferies LLC Robbie J. Marcus - JPMorgan Securities LLC Matthew O'Brien - Piper Jaffray & Co. Steven Lichtman - Oppenheimer & Co., Inc. Jayson T.

Bedford - Raymond James & Associates, Inc..

Good day, everyone, and welcome to the Integra Fourth Quarter 2016 Financial Results Call. As a reminder, today's call is being recorded. At this time, I would like to turn the call over to Angela Steinway, Global Head of Strategic Initiatives and Investor Relations. Please go ahead, ma'am..

Thank you, Jessica. Good morning, and thank you for joining the Integra LifeSciences' fourth quarter 2016 earnings results conference call. Joining me today are Peter Arduini, President and Chief Executive Officer; and Glenn Coleman, Chief Financial Officer and Corporate VP of International.

Earlier this morning, we issued a press release announcing our fourth quarter and full year 2016 financial results and providing 2017 full year guidance. We also posted a presentation on our website, which we will reference during the call today.

You can find this presentation at integralife.com under Investors, Events and Presentations in the file named Fourth Quarter and Full Year 2016 Earnings Call Presentation. If you would open that file up to slide 2, please reference our Safe Harbor statements covering the forward-looking statements.

Also please turn to slide 3 to find an explanation of non-GAAP financial measures that we will refer to on today's call and reference the reconciliations of non-GAAP financial measures at the end of the presentation beginning on slide 15. We held a conference call last week announcing the planned acquisition of Codman Neurosurgery.

The presentation is available on our website. As a reminder, this transaction is expected to close in the fourth quarter of 2017 and we are not including impact of this acquisition in our financial guidance.

That said, our guidance will include the financial impact for the Derma Sciences acquisition announced in January and the charges associated with pre-closing costs for the Codman Neurosurgery acquisition. And now, I will turn the call over to Pete..

Thank you, Angela, and good morning, everyone. Our fourth quarter results closed at a strong performance in 2016, and we're seeing the results of the investments that we've made in our business over the past few years. If you'll turn to slide four, I'll walk through some of our recent accomplishments.

Organic sales increased 9% for the full year and 7% for the fourth quarter. Growth in our dural repair franchise and our regenerative portfolio once again drove these results. Full year adjusted gross margins reached 69.5%, while adjusted gross margin for the fourth quarter a record high of 70.2%.

We're pleased with the progress that we've made and believe that it's directly attributable to the growth of our differentiated high-margin products. Sales in our Specialty Surgical Solutions segment increased 7% in the fourth quarter and over 7.5% organically for the full year, exceeding the 6% to 7% guidance we provided in October last year.

In addition to continued strength in our dural repair and precision tools and instruments franchise, we're also pleased to see our global capital businesses in both tissue ablation and neuro-critical care finished the year with strong results.

For the full year 2016, we generated nearly $160 million in cash flow from operations and approximately $50 million in the fourth quarter, excluding the payment of accreted interest associated with the maturity of our convertible notes in December. Free cash flow conversion outpaced our October guidance by nearly 83% on a trailing 12-month basis.

Improvements in working capital and increased GAAP profitability drove this result. Finally, in December, we announced the expansion of our credit agreement to $1.5 billion and its extension through 2021.

This balance sheet flexibility provided us with the means to refinance our convertible notes, will fund Derma Sciences acquisition, and will partially fund the acquisition of Codman Neurosurgery. Before turning the call over to Glenn, I'd like to make a few comments about our recently announced and pending acquisitions.

On January 10, we signed a definitive agreement to acquire Derma Sciences through an all-cash tender offer. Last night, the tender offer expired and we're pleased to report that the majority of the shares were tendered and we expect to close the transaction in the next few days.

The addition of Derma's regenerative technology capabilities, amniotic tissue-based technology and advanced wound care products accelerates our 3x3 strategy and further enables us to drive scale in the advanced wound care market.

Separately last week, we agreed to acquire the Codman Neurosurgery business from Johnson & Johnson, which will enhance our global position in neurosurgery by adding a complementary product portfolio and the world recognized Codman brand.

This purchase will help build relevant scale, accelerate international growth and expand the neurosurgery sales channel. This acquisition also will accelerate our strategy to achieve our aspirational targets of $2 billion in revenue and 30% adjusted EBITDA margin. The deal is expected to close in the fourth quarter of 2017.

And now, I'd like to turn the call over to Glenn, who's going to provide a more detailed review of our financial results.

Glenn?.

Thanks, Pete. Good morning, everyone. Please turn to slide five. Our fourth quarter financial performance was in line with our January 10 preannouncement. Fourth quarter reported sales in Specialty Surgical Solutions were $163.8 million, an increase of 7.2% over the prior year on an organic basis.

Sales in dural repair increased in the high single-digit range, resulting in record sales. As we'd expected, growth began to temper in the fourth quarter from the double-digit growth that we had achieved for most of the year, but was more in line with the above market growth that we believe is sustainable.

Precision tools and instruments sales increased low single-digits compared to the prior year quarter. Our MAYFIELD 2 sales combined with lighting and surgical instruments drove the growth. Together, tissue ablation and neuro-critical care sales grew double-digits over the same quarter last year.

Strong global capital sales, especially in Europe, helped drive the performance and resulted in double-digit growth across all regions in the fourth quarter. For 2017, we expect sales in the segment to increase in the range of 3.5% to 5.5% on a reported basis and a point faster on an organic basis.

Compared to the 7% performance in 2016, this deceleration reflects tempered expectations for growth in dural repair and precision tools and instruments consistent with our prior messaging. Please keep in mind that Specialty Surgical Solutions has a larger foreign currency impact in our Orthopedics and Tissue Technologies segment.

The Codman Neurosurgery acquisition is expected to close in the fourth quarter of 2017 and will be integrated into our Specialty Surgical Solutions segment at that time. As this acquisition has not closed, it is not included in today's financial outlook.

We plan to provide more details including financial guidance for the Codman Neurosurgery acquisition when we get closer to the fourth quarter. Turning to slide 6, fourth quarter sales in the Orthopedics and Tissue Technologies segment were $91.9 million, representing an increase of 6.6% on an organic basis.

Sales of our regenerative technologies increased high single-digits in the fourth quarter. That said, this franchise grew double-digits, excluding the PriMatrix and SurgiMend brands. We gained new PriMatrix and SurgiMend customers during the fourth quarter, which resulted in a sequential sales increase in the U.S.

The addition of new customers, coupled with several upcoming product launches, will enable these product lines to return to growth during 2017. We closed 2016 with sales of our advanced wound care product lines of approximately $11 million, in line with our January 10 pronouncement.

Moving to our extremities franchise, sales of our Salto Talaris and Cadence ankles, together with our Titan Shoulder product lines, increased double-digits in the quarter, but were more than offset by declines in our legacy extremities products and the discontinuation of our HINTEGRA ankle in Europe.

We are early in our launch of the Cadence ankle in Europe and expect that over time we'll be able to recapture a solid portion of the lost sales. The Derma Sciences acquisition is expected to close in the next few days and once complete will be integrated into this segment.

For 2017, we will be providing directional commentary on our advanced wound care product lines, sold by the roughly 90 sales force focused on the outpatient wound care channel. The products in this category will include Omnigraft, PriMatrix and VolTAC now combined with Derma Sciences advanced wound care portfolio.

Some of the Derma Sciences brands sold by this channel include the total contact cast, MEDIHONEY, and AMNIOEXCEL, as well as other antimicrobial wound dressings. To baseline what we're now calling advanced wound care, total pro forma 2016 sales of these products were approximately $50 million.

For 2017, we expect at least 20% growth to $60 million in pro forma sales in our advanced wound care franchise, including the full year of Derma Sciences. Given the integration work and cross-training of the sales teams, we expect growth to be greater during the second half of the year.

With respect to the Orthopedics and Tissue Technologies segment as a whole, we expect 2017 sales to grow in the range of 27% to 32% on a reported basis and 9% to 14% on an organic basis. This includes a total acquired sales impact of approximately $70 million for the Derma Sciences acquisition.

Turning to slide seven, I'll walk through the components of our full year 2017 revenue guidance. We ended 2016 with reported sales of $992 million.

And based on the segment guidance I just provided, we expect consolidated full year 2017 revenues to be in the range of $1.12 billion to $1.14 billion, representing a reported growth of between 12.5% and 15.5%. Included in this range, we expect organic sales to grow between 7% and 8.5%.

Derma Sciences is expected to add about 7 points of growth to revenue in 2017. Foreign currency is expected to produce a headwind of approximately 1% at current exchange rates. For the first quarter of 2017, we expect revenue to be in the range of $252 million to $256 million, representing 5% to 6% organic growth.

Now, if you please turn to slide eight, I'll review our fourth quarter and full year P&L performance and provide guidance for the full year 2017. In the fourth quarter, GAAP gross margin of 66.6% increased 390 basis points from the prior year.

Adjusted gross margin reached a record high of 70.2%, an increase of 190 basis points over the prior year as we continued to benefit from a favorable product mix. For 2017, we expect GAAP gross margin to be in the range of 65% to 66% and adjusted gross margin to be between 69% and 70%.

As we indicated on our January 11 preliminary results call, the addition of Derma Sciences is dilutive to our adjusted gross margin by about 100 basis points for the full year. Excluding the Derma Sciences acquisition, we expect an improvement of roughly 100 basis points in the underlying gross margin during 2017.

Turning to operating expenses, R&D as a percentage of revenue in the fourth quarter was 5.4%. For 2017, we expect both our GAAP and adjusted R&D to be approximately 6%. SG&A expense in the fourth quarter was 43.9% of revenue, a decrease of 160 basis points over the prior year's fourth quarter.

Adjusted SG&A decreased 50 basis points to 41.9% year-over-year. In 2017, we expect GAAP SG&A to be in the range of 51% to 52% and adjusted SG&A to be 43% to 44%, reflecting the additional investments in channel expansion.

The increase in GAAP SG&A for 2017 is primarily related to the integration costs we will incur associated with the Derma Sciences and Codman Neurosurgery acquisitions. Our fourth quarter 2016 adjusted EBITDA margin was a record 26%, an increase of 250 basis points over the prior year.

On a full-year basis, our adjusted EBITDA margin increased 120 basis points to 23.4%. For 2017, we expect our adjusted EBITDA margin to be in the range of 23% to 24%, which includes about 100 basis points of dilution from the Derma Sciences acquisition.

Moving to slide 9, based on our full year 2017 outlook and the guidance for revenue and expenses that I just provided, we expect GAAP earnings per share to be in the range of $0.49 to $0.55 and adjusted earnings per share to be in the range of $1.88 to $1.94.

This represents growth of between 7% and 10% in our adjusted earnings per share and includes a foreign currency headwinds and dilution from the Derma Sciences acquisition. We also faced the headwind from the higher share count associated with warrants that are tied to our convertible bond.

It is worth noting that our 2017 adjusted net income growth is 10% to 13%, inclusive of the dilution from the currency and Derma Sciences. For the first quarter of 2017, we expect adjusted earnings per share to be flat with the prior year first quarter.

Turning to slide 10, we closed the fourth quarter and full year operating cash flows on a positive note and exceeded the high end of our guidance range. This enabled us to continue to advance our investments in automating our collagen manufacturing plant in Plainsboro.

For 2017, we expect cash flow from operations and free cash flows to be negatively impacted by the integration costs associated with both acquisitions. Including these integration impacts, we estimate our operating cash flows to be in the range of $115 million to $145 million and free cash flow conversion in the range of 40% to 60%.

Please turn to slide 11 for a quick update on our capital structure as of December 31, 2016. We ended the year with a cash balance of approximately $102 million and a net debt of $563 million. This translates to a bank leverage ratio of approximately 2.4 times.

In December, we expanded our credit facility from $1.1 billion to $1.5 billion and used a portion of the proceeds to pay off the 2016 convertible senior notes. The credit facility was also extended two years to 2021.

Turning to slide 12, let me now provide a preliminary pro forma look at our capital structure taking into account both recent acquisitions. We will be using approximately $200 million of cash from our credit facility to pay for the Derma Sciences acquisition in the next few days.

We plan to finance the Codman Neurosurgery acquisition through a combination of cash held outside the U.S., our existing credit facility and a new term loan, which we expect to finalize between now and the closing of the acquisition.

Based on our anticipated borrowings, our bank leverage ratio is expected to increase to slightly under 5 times net debt to adjusted EBITDA in late 2017.

However, as we've indicated, the Codman Neurosurgery acquisition is accretive to our adjusted EBITDA and we will immediately focus on using cash generated in the near-term to pay down our outstanding debt.

It is our plan to operate with a net debt to adjusted EBITDA ratio as calculated in accordance with our credit agreement at or below 3.5 times, which we believe we can achieve by the end of year three based on the projected cash flows of a new combined business. And with that, I'll turn the call back over to Pete.

Pete?.

Thanks, Glenn. We achieved the many goals that we set for ourselves in 2016 and on slide 13 we outline our key focus areas for 2017. Glenn just walked through our detailed 2017 guidance and we look forward to delivering organic growth of 7% to 8.5% and adjusted EPS of $1.88 to $1.94, with double-digit adjusted net income growth.

The addition of Derma Sciences broadens our portfolio of advanced wound care products and expands our regenerative technology capabilities with an amniotic tissue-based platform.

This acquisition caps off 2016 as a transformative year for advanced wound care strategy and sets us up for accelerated growth in the second half of 2017 after we integrate the channels. We received PMA approval for Omnigraft, which was launched in 2016.

Omnigraft has unmatched clinical data supporting its wound healing characteristics and is the only product with a label for regenerating tissue. We also in-licensed VolTAC, a unique antimicrobial wound dressing which is used earlier in the wound care treatment process.

We're excited to begin 2017 with an outpatient focused channel of roughly 90 representatives, who can offer a comprehensive set of advanced wound care solutions. In our commercial channel, along with the Derma Sciences products, we're excited about the long-term value we can create for patients as well as shareholders in this fast-growing market.

Shifting to Specialty Surgical Solutions, last week, we announced an agreement to acquire the Codman Neurosurgery business from Johnson & Johnson. This acquisition hits on many key strategic tenets, while moving us towards our aspirational financial targets of $2 billion in revenue and 30% adjusted EBITDA margin.

While providing needed international scale, Codman Neurosurgery and its globally recognized brand provide a broad and complementary product offering which will enable Integra to extend its position in the United States and become a leader in the global neurosurgery market.

The scope and scale of this acquisition will support increased investments in R&D that will result in innovative products and solutions for neurosurgeons. And we look forward to new product introductions from both our internal R&D program as well as the Codman pipeline. Neurosurgery is our core expertise within Specialty Surgical Solutions.

With future investments, the Codman acquisition provides the global reach that will contribute to growth for years to come and we look forward to closing this transaction in the fourth quarter of 2017.

The combination of successful integrations of Derma Sciences and Codman Neurosurgery, along with execution of our core growth strategy, will make 2017 an important year for Integra.

We've assembled separate dedicated teams made up of executive leaders, internal functional specialists, and external advisors with carve out acquisition expertise to drive these integrations. And we're confident in our ability to complete these acquisitions, while at the same time driving growth in our core business.

We'll also advance our regenerative technology strategy this year. Many of you attended our Regenerative Technology Day in December and saw the breadth of our product portfolio and the market opportunities that exist.

We continue to make investments in this channel and the necessary health economic programs to prepare the market for the new product introductions that we expect later this year.

In 2017, we expect to launch five new regenerative products, which in conjunction with other launches within our hardware and electromechanical franchises will contribute to organic growth across the company. Finally, we'll expand our extremity efforts in 2017.

In the first half, we will add additional sales reps to build capacity in our extremities reconstructive channel. This added capacity will support both the new regenerative launches as well as the planned growth in ankle arthroplasty.

Currently we're in the process of a global full market release of the Cadence ankle, and in combination with the Salto Talaris, we're well positioned to capture share in this fast-growing ankle market. If you turn to slide 14, we want to reiterate some of the commentary that we made on the Codman Neurosurgery announcement call last week.

We expect to sustain 6% to 8% organic growth through 2018 and beyond. And even though both acquisitions are expected to be slightly dilutive to our overall top line growth, post integration and with additional scale and commercial focus, we believe we can accelerate growth for both of these businesses.

I just mentioned that we'll have five new regenerative products launching in 2017 within our OTT segment, Specialty Surgical Solutions has a similar strong pipeline of new products, and international markets will benefit from many of these product launches.

Our adjusted gross margin will be reduced by roughly 2 points when we factor in the impact of these acquisitions without cost synergies. That said, the faster growth of higher margin products, such as AMNIOEXCEL and operational improvements should enable us to achieve our adjusted gross margin targets, albeit slightly longer than initially planned.

The combined scale and profitability from these deals gives us the confidence that we will be ahead of our 25% adjusted EBITDA margin target in 2018. With that greater profitability will come faster growth in adjusted EPS.

And as you recall from last week's announcement, the Codman Neurosurgery acquisition is expected to be at least $0.22 accretive in the first year after closing and increasing thereafter.

While our profitability metrics are on target for 2018, we expect to incur significant cash expenses and one-time charges related to the two integrations that'll have a negative impact on our cash flow metrics. We expect this impact to be temporary and look forward to updating our long-term strategy and financial targets later in the year.

To wrap up our prepared remarks, the Derma Sciences and Codman Neurosurgery acquisitions together will transform the company and significantly advance our scale, global reach and profitability. Coupled with organic growth, driven by new product introductions and commercial investments, 2017 is taking shape as a transformative year for Integra.

So, with that, operator, would you please open up our line for questions?.

Certainly. And we will take our first question from Matt Miksic. Please go ahead. Your line is open..

Thanks so much for taking the questions. So, nice job on the organic growth, we thought.

But maybe just to take that topic as we head into 2017 here, it would be helpful if we could get a sense of what some of the headwinds against sort of your reported numbers will be just so we can kind of think about the right math, whether it's discontinued products, I think we can figure out the contribution or approximate contribution from new businesses, but just maybe some of the puts and takes if we think about sort of first half organic growth.

And then I had one follow-up..

Yeah, Matt, let me – it's Pete. Let me open up and comment on, and then I'll have Glenn give a few more details on some of the puts and takes on how the ramp takes through the year. Obviously, we have a steeper ramp in the second half than we do in the first half, but why we feel confident in 7% to 8.5% and starting out with a 5% to 6% is this.

First of all, we're going to be adding about 125 total new sales representatives this year. It's about 75 reps that will add organically through the organization. Many of those will be in combination of our OTT business as well as international, some select additions within SSS.

And then on top of that, there's 50 coming in obviously from Derma Sciences, which will be playing on – (25:47) beginning the integration here within second quarter. And we plan to obviously keep all those reps and to be able to grow that channel.

However, when you're bringing those together, we don't expect to have a significant amount of upside growth, in fact, some disruption as we're bringing those together. So that's channel. If you go to new products, we really have a really nice basket of new products coming out.

More of the launches take place in later Q2 into Q3, but we're pretty excited about it. We've got about five, as I mentioned, regenerative products. Keep in mind, all of those products have higher margins on them. They also are products that we think address some of our challenges we've had in the areas of, say, SurgiMend.

They bring out another version, I would say, size wise in the Omnigraft area, as well as some other unique components there that I don't want to necessarily give an update on at this point in time till we launch, but all of those products just within OTT are, for the most part, Q2 to Q3 launch.

And then, in Specialty Surgical, we have a similar situation with about three products. And we have a larger launch that we've been working on for some time that we think is going to be quite a continual growth driver for the company and we'll talk more about that on our next call when we're ready to launch that.

So, all of those are the products, and then I think about markets and momentum. We've clearly had a stronger first half in 2016, so there is some comps in the first half that are a little bit stronger. But if I look at our skin and reconstructive wound business, our classic Integra business, is continues to be strong.

The outpatient advanced wound care area, we believe that we're going to have strong growth there, but again, we'll probably have a little bit of some disruption in the first half. And then as we get this channel integrated together, all 90 of those sales reps are going to be selling both sides of the product.

Dural repair continues on, but again, dural repair has some much more challenging comps. If you remember, in some areas, we were growing in the high teens to close to 20% last year. And then also, we're making very good progress with ankle. I'm very optimistic about the ankle market, both what we can do domestically but globally as well.

And that will be ramping up throughout the year. And then, I think last but not least is private label, which we've talked about. We started working on some deals last year. Some of those are going to come through, and more of those, I'll say, will have an impact on volume in Q3 to Q4, just based on how those agreements go.

So that's kind of the broader laundry list channel additions, new products and market momentum. I mean, Glenn, I don't know if you want to add any kind of details around that..

Sure. So, Matt, I think one of your questions was kind of year-over-year as well. We did over 9% organic growth in 2016. Our guidance is 7% to 8.5%. Pete talked about our confidence in the 7% to 8.5%, but year-over-year, our Specialty Surgical business is going to be a point or two slower.

We've been messaging this now for a while that dural repair is going to be a nice grower for us, high-single digit range. That's what we did in the fourth quarter here, but not going to see a double-digit growth rates that we had in the first three quarters.

So that's one of the year-over-year decelerators, but still very strong growth overall, and also the same thing with our precision tools and instruments business. So, year-over-year, those are the areas that we're not going to probably see the same level of organic growth.

And then, relative to some of the other moving parts that you had referenced, I would say discontinued products is about 50 basis points of a headwind for us and FX is about a full point based upon current exchange rates..

That's super. Thank you for the color. And, Glenn, while I have you, if I can ask you one follow-up on gross margin. I think we understand after the call on Codman the sort of expectations for this year, underlying improvement in gross margin, and impacted negatively in the near-term by Codman.

But looking out, and I know we're not talking about 2018 and 2019 per say, but does that gross margin – what puts it back on track if that's the right way to say it? Or what are some of the intermediate long-term positives that can start driving that back up again in terms of leverage?.

Yeah, so let me just put a couple of parameters around what you said. I would say, first, relative to our base business in 2017, continuing to expect good mix in our overall portfolio. So, our base business, we're expecting to see about 100 basis point improvement, but it's being offset by the dilution from Derma Sciences.

So relative to our guidance, 69% to 70% reflects those two moving parts..

Right..

To your point on Codman, it probably adds another 100 basis points of dilution in the short-term after we close the acquisition. But, again, as we look past 2018, we expect to see an improvement in overall gross margins, bringing us back to 70% or even higher than that once we move past the integration.

So I would say the targets that we laid out for 2018 are still very valid for gross margins. It's just going to take us longer to get there, given these two acquisitions, but we're still believe that we can get to at least 70% beyond 2018..

Great. I'll leave it there. Thanks so much..

Thanks, Matt..

And we'll take our next question from Travis Steed. Please go ahead. Your line is open..

Thanks for taking the questions. So I had a big picture question on Codman.

Now that the deal has been announced for a few days, can you share some of the early feedback from your employees, Codman's employees, and also any early feedback from the FTC?.

Yeah. So I would say, Travis, look, the overall feedback has been extremely positive. I think the interactions that we've had with the Codman employees, which has been minimal at this point, as you can imagine, we're obviously still competitors, we've had some dialogue that we've been able to communicate to them in a video form and letters and things.

And I'd say in the next few months, we'll have opportunities to actually go to some of their locations and meet people and have discussions. But I would say at this point, I think overall excitement from the standpoint of what we can create together.

And I think that's what's really important here that in many ways this is a merger of bringing two great companies and groups together to create a neurosurgery business that can really innovate and bring new innovations to the market.

I think this is a space that's probably been a slower innovation area for a lot of reasons, but our intent is, and I think that's a lot of the excitement around this, is to be able to bring back more clinical innovation within the space.

And I think the size and scope of this with the complementary nature of the products is going to enable us to be able to do that. And on the Integra side, I think across the board same things. People really excited about it, see it as a great opportunity. I think Glenn can comment on. He's Head of International.

I think our international team broadly, not just in Specialty Surgical but for the whole company, really see this as a big win because it makes international that much more relevant to the company, when you go from $200 million of revenue of $400 million of revenue, you become somebody and you set up a capability that allows us to focus on realistically the biggest long-term growth.

As far as the FTC, we've just commenced our filing, as you can imagine, so, really, no feedback at this point in time. And as I've commented before, it's a very highly competitive industry within this.

Yeah, there are about four larger players overall, but in each of these segments, in many cases, there's eight to 10 different players that throughout the world play in all these segments. So we'll obviously engage the FTC and we plan on working with them to kind of work this through.

And our goals are to obviously kind of layout our overall strategy here and interact with them over the next few months. But so far across-the-board, everything's kind of coming off as we drew it out on the chalkboard and we feel quite good about the initial week's amount of feedback..

Great. Thank you. And then, you've kept 7% to 8.5% revenue guidance even after announcing Codman.

Is there any potential for disruption in your neuro business before the deal closing? Just how are you considering that in your guidance? And also on CapEx, the step up in 2017, is that all Derma coming in, or is there some extra investments on the Integra side as well?.

Yes. So I'll hit the growth piece and then maybe, Glenn, you can hit the question on – the CapEx question. So, yeah, we've looked at the component here of potential disruption.

I would say this, from a standpoint of any of the work that we need to do to stand up the business, the (34:42) acquisition, keeping our commercial teams completely separated from this event, even including up into senior commercial leaders, is a big part of when we talk about setting up these dedicated teams with dedicated resources.

That's why we're doing it. We don't want your head of sales on meetings half the week talking about integration when they should be worried about selling. And I think we've been thoughtful about doing that in a very productive way.

That being said, we think, I mentioned about Derma Sciences, we are going to be integrating here, as we're closing this deal in the next few days. Do we think the end of Q1 into Q2, we have a little bit of dis-synergies as we actually line the territories, do some of that work, yes. And we factored some of that into the run rate.

We called it $70 million for the year, but there's probably about $5 million of – a little bit of dis-synergies here in the first half with Derma. We'll get that behind us. And then, I think we'll leave Q4 with a run rate that's a growth above the base of the 2016 growth that Derma put up. So I think we factored that in.

And then, again, when you add 125 reps, you've got over 10 new products, you've got some healthy markets, that's what gives us confidence that we can see that 7% to 8.5% organic growth coming through, even with integrating these deals.

Glenn, do you want to hit the other points?.

Yeah. Travis, on your question relative CapEx, certainly we've got some CapEx planned for the Derma Sciences acquisition and integration. What I would say though is we view CapEx, on a normal run rate, to be about 4% to 5% of our sales.

So if you think of sales being call it $1.1 billion, kind of fits into the range that we provided for CapEx for this year of $50 million to $55 million or so. I would say the big parts of the CapEx still are going towards growth initiatives, so automating our new collagen manufacturing plant, spent some money in 2016, we have more to do in 2017.

We're also investing more in the instrument sets to do the launches of several of our orthopedic implants, like Cadence as an example, and Salto, and so forth.

So the nice thing about our CapEx is a lot of it's going to support the growth initiatives across the company and automating our facilities, very little going towards facility maintenance and so forth. But I think, going forward, you should think of a normalized CapEx run rate to be about 4% to 5% of sales.

And as we grow as a company, that absolute dollar number will continue to grow..

Okay, great. Thanks for taking the questions..

Sure..

We will take our next question from Jonathan Demchick. Please go ahead. Your line is open..

Hello. Thanks for taking the question..

Sure, John..

Pete or Glenn, not sure which one of you want to tackle this one, but I wanted to start off on the Codman deal and the financing associated with it.

I had a handful of questions from investors over the past week about the possibility of an equity financing considering the higher leverage ratio and the strategies for the Confluent deal a few years back.

So I guess given commentary for financing and debt pay-down strategy, it sounds like you're committed to only using financing, but can you comment on this and your comfort level of operating at near 5 times leverage and also your willingness to use equity deals in the future, if the opportunity comes up?.

Jon, so I'll take a crack at this one. Pete can add in any comments. Yeah, at this point in time, we don't have any intentions of doing an equity raise, but we'll use a small amount of cash O-U.S. as part of funding the Codman acquisition. We've got a lot of capacity still under our senior credit facility.

We'll still leave ourselves some room to do the general day-to-day operations and then we're going to do a new term loan B. And so that is our plan relative to how we're going to finance the transaction. And that's what's been baked into all of our conversations and guidance so far. Will we ever do an equity raise in the future? Sure.

I mean, we continue to look at our capital structure, if we do more deals down the road and so forth. We've done a couple of equity raises in the past. You mentioned DuraSeal being one. After the TEI deal, we also did an equity raise. But right now, our plans are to fund the Codman acquisition through debt..

Okay, very clear. And Pete, I had a follow-up on, I guess, on the advanced wound care side. Appreciate the additional color on the channel and then the $60 million in pro forma sales expected in 2017, 90 reps in the field. So this yields, I guess, just under about $700,000 of sales per rep.

And with the continual adds, it's likely a little lower than that. In the sales channel (39:31), I guess I would generally think of rep productivity at closer to the $1 million per rep range.

Is that a fair target over time and do you need additional products to get there?.

No, I think, Jon, your math is pretty close. I think if you think about – again, our pro forma number Glenn went through. When you take our regenerative products plus the Derma, the pro forma number for 2016 is about $50 million. The comparable number, as we talked about, is $60 million for 2017, about 20% growth.

It's obviously significantly less per rep in the first half than your number you quoted and we get on to that level of about $700,000 right at the end of the year. So, I would agree with you.

I think that a rep that carries those advanced products, but also carries a broader spectrum of products to prepare the wound, as well as things like protected offloading with boot, you might ultimately be able to handle a little bit over $1 million at some point.

So, our hope is the channel around 100 reps, clearly, I'd say $700,000 a rep – $700,000 a rep, there's clearly more capacity, and the question is definitely up to $1 million per rep, maybe a little bit better. And we'll kind of test out that theory and see how we go.

But our obviously channel we're starting out with, we'll have some more upside capacity.

And I think the growth is going to come from more so on the fact of being able to advance the 3x3 strategy, more PriMatrix, more Omnigraft, more AMNIOEXCEL in the same accounts where they may use these products on different patients at different times as opposed to more customers that burn more time covering more geography.

So the concentration of the bag makes a pretty big difference in developing more sales per rep..

Thank you very much..

And we will take our next question from Young Li. Please go ahead. Your line is open..

Thanks for taking our questions.

Can you hear me okay?.

Yeah. We can..

All right. Great. I guess maybe just a product question to start, so it seems like the Salto ankle is performing well. Can you talk about exercising the international rights and just the timing and expectations around that? And I think you also mentioned an ankle revision product at an earlier conference.

Was that in reference to a new product?.

Yeah. So, it's a good question. So, again, I think just broader ankle market in general, we feel quite good about U.S. And as we made in our comments, the HINTEGRA (42:15), which was a three-piece ankle that we had in the past, discontinued, and so the Cadence is our only product outside of the United States as we're launching it now.

And we do have the rights to pick up the Salto. And those rights can be initiated as far as working on as early as April through the second half the year. But I would caution that initiating them doesn't mean selling it right away.

So I think the fact is we're going to make some decisions on when we exercise the right and how the timing of that will play out. I think the earliest of that playing out and having any type of effect on a sales rep getting and selling it is later in the second half of the year.

But we're quite interested in bringing that in to have the complete portfolio. On your question relative to revision, we have been working on a revision product.

And that product, before the end of the year is out, we'll speak more to that in more details on it, be in a position to be able to get it into the clinic this year, but most likely from a standpoint of commercial sales, won't have really any relative impact until next year.

But I think what's important between the Cadence, which has very distinct capabilities, Salto, longest track record history, Salto international and a revision, we're going to be quite a strong player within the ankle space and hence why we're adding additional resources as well to support it..

Okay, great. Thanks for that color, very helpful. And I guess just the Ortho and Tissue Tech business came in a little bit slower than our expectations, and the overall extremities business declined this quarter, while the market is growing.

I guess, maybe, can you talk about the additions in ankle or extremity rep adds just in terms of number or timing or contribution?.

So let me make a quick comment, and then, Glenn, you can add some color to it. So, if you think about how we came out of Q4, we actually had a little bit more of a slowdown relative to some of the TEI products and we had a little bit of lightness on the outpatient. Those are plans that we think between reps and such that we'll be in good shape.

We actually ended up in double-digit growth with our shoulder and our ankle coming out of the end of the year and have good momentum with ankle coming into the quarter.

We think that the ramp up on that, obviously, is going to be linear over the year because we're just bringing that out and it takes time to get new sets out, it takes time to get into more countries around the world.

So, if you think first half, second half, obviously there's going to be a stronger ramp up in the second half relative to the hardware and the ankle lineup.

I'd also say there's some complementary products like an External Fixation product that we just launched, again, that's used for ankle fusion or cold trauma, our Panta Nail product, which has been a leading product we've had as internal fixation, that'll be continually sold within that.

And so, as we bring more reps on, particularly with more of a focus on the ankle or lower foot issues, there's a pretty good basket that we've assembled now that they can sell against. And I think on the regenerative side, we've got some interesting things going on.

I think, Glenn, you may want to comment on that, that helps fill out some of the portfolio. And again, I emphasize the fact that these are new products that are coming out of our latest acquisition and will be incremental this year..

Yeah. The only other thing I would add, first on extremities, the decline that we saw was really outside the U.S. and we're working through a transition right now. As Pete mentioned, the HINTEGRA ankle and so forth. The U.S. actually had growth.

So just to highlight why extremities was down, it was really a transition that we're going through outside the U.S. Relative to the regenerative portfolio, we've got a lot of new products we're launching. There are a couple of different sizes coming out, smaller sizes of PriMatrix, of Omnigraft.

We've got various forms of SurgiMend being rolled out, including a macroporous product. And so we've got a very interesting lineup of new product introductions that are coming out here that should drive some good growth for us in 2017..

Great. Thank you for taking the questions..

Sure. Thank you..

And we will go next to Raj Denhoy. Please go ahead. Your line is open..

Hi. Good morning..

Good morning, Raj..

Wondering if I could just maybe follow-up on the last question. You did comment, I think, in the prepared remarks that kind of your legacy extremity products continued to be a little weaker.

And I know the questions come up at various points over the last couple of years, but have you given broader thoughts to your strategy in extremities and if it's still an area where you think you want to be broadly focused? And I know you've made a lot of comments around the ankle space, but what about beyond that?.

Yeah, look, I think it's a great question, Raj. And I mean, in short, we're very much committed to the extremities space. And here's kind of some of the things that have changed, that we've obviously had different levels of performance. We've had some fits and starts relative to kind of new products.

And I think we've made some pretty good changes in the last year to concentrate really the whole team now on our Austin facility, which goes a long way with being able to kind of get new products out faster, alignment with our marketing organization.

I think the addition of Bob Davis within that team is going to really make a big difference relative to their ability to get new products out, be able to focus on differentiation in marketing. So that's all part of the operational things that what's different that's going to help us be able to get the kind of growth we expect.

The other side is that when you take a look at, in particularly lower extremities, there are still some very good synergies with the regenerative pipeline. And I think how we've exploited those has probably not been maximized, whether it be our nerve technology and how that's tied in with hand and reconstruction surgery and upper.

But in lower, everything from with podiatric surgeons to orthopods on tissue, on tendon, on ligament repair, we actually have a pretty nice portfolio of products that we're spending more time integrating those into the strategy. And we've talked about that, but our effectiveness of doing it, I would say, hasn't been what we had hoped.

And I think we've got the right people in place to be able to do that. The breadth of our overall channels upper, lower, I think we're going to spend some time to make sure that we're focusing on those areas within extremities where we can have the biggest impact and win.

But I think over the next two years, there's going to be a real critical window for us to be able to demonstrate that with these changes we've made we can kind of get the growth that we need and, to the fact, be one of the top four players in the chosen submarkets in extremities.

But, right now, we're very much committed to it, we're investing appropriately, and I'm pretty excited to see what we can do here in 2017 relative to extremities..

So, just to put a finer point on it, are you equally as committed to the upper extremity, the shoulder market, because a lot of the focus it seems is on the ankles and what you can do in terms of leveraging the regenerative portfolio in the lower extremities, but do you think you've got an equally strong chance to be a competitor in the shoulder market long-term?.

Yeah, we do, but it's really tied as much to how our PyroCarbon technology and the evolution of that plays out. And what do I mean by that? Look, in the short-term, we've got everything from different glenoid solutions and work that we're doing relative to instrumentation to make us very competitive.

But to be competitive versus the big guys that play in this market, us coming up with tweaks within the metal portfolio for shoulder probably isn't going to do it. What's going to do it is having a technology that differentiates us. And we think PyroCarbon can do that. We'll see how that ultimately plays out here in the clinical work.

And if it does, I think we can be a substantial player. If it doesn't, we probably have to make different decisions about how we think about the overall portfolio. But at this point in time, it looks extremely promising.

Really, changing how you think about shoulder arthroplasty that you could do a hemi procedure and there really isn't any other technologies or capabilities on the horizon that look like they could compete with a product that we play in that space. So that's really kind of how we think about that.

And again, that takes multiple years of clinical study to come to market. In the meantime, it's focused on tweaks and line extensions into the product family of the Titan Shoulder..

Okay, great. Thank you..

Thanks, Raj..

And we will take our next question from Robbie Marcus. Please go ahead..

Good morning, Robbie..

Good morning. You made it all the way through a call without anybody asking about DFU, so I'm going to go ahead. I know you had some – a shortfall in the fourth quarter. I didn't hear any guidance for 2017, as it's being lumped into the advanced wound care.

Maybe you could just give a sense of what you saw in the fourth quarter that led to the shortfall. Maybe your thoughts on some numbers for 2017 and how the addition of the Derma product helps you maybe sell better into channel..

Robbie, we're glad you asked that question on DFU and advanced wound because it is a big and exciting area for us. Again, I would say – I'll let Glenn comment maybe on some of the numbers and the breakouts, how we think about it.

But, look, we know we've got a winner within Omnigraft, and now having this 3x3 strategy where you can go to a clinician, if they want amniotic, they want a different product that has unbelievable strength and shearing capabilities, such as PriMatrix, they want a product that actually can heal in one application and has the best data out there, has a regeneration claim to it, we now have that full portfolio.

And when you add in a – all the preparation products on how to take care of a wound bed, things such as MEDIHONEY, every patient that has a DFU need some type of offloading. We now have the best offloading boot in the total contact cast.

Yeah, it's a big deal, when you can now day-one see a doctor be able to actually sell them something as opposed to waiting for four to six weeks till they can use one of your advanced products. So we have more of a continuum sale. The other side I'll mention just before Glenn comment a little bit is about reimbursement.

I think our insights and capabilities have grown quite a bit from a standpoint of how we think about reimbursement with different areas, whether it be Medicaid, Medicare, the private payer world, and how we think about office-based wound care, inpatient.

And so, I think our sophistication has grown in that area, which is important on how you think about where you put priorities and where you don't. And so, I remain very optimistic and quite excited now that we've got the Derma family of products within the fold.

Glenn, you may want to just on how we thought about the guidance and how we think about the numbers..

Yeah. Robbie, we're not going to specifically break out the specific revenues for each of the product lines within our advanced wound care business for competitive reasons, but we felt that it was important to give you some context about how that part of our business is doing year-over-year and what we're including in our 2017 guidance.

So, when we look at 2016 pro forma, including Derma Sciences for a full year, it's about $50 million of pro forma revenues. We're expecting 20% growth in 2017, so the $50 million becoming call it $60 million.

What I would say is the vast majority of that growth is expected to come from the legacy Integra portfolio, including Omnigraft, but we're not breaking out separately. That's the way we think about the growth for 2017, 20%, and a lot of that coming from the legacy Integra portfolio..

Okay. That's helpful. And then, Glenn, if I could sneak in two quick ones for you. One is, with organic growth where it is for the first quarter, it implies organic growth for the rest of the year closer to 9%.

Maybe you could just help with the Cadence and some of the puts and takes that get you confident in getting up to that higher end? And then also, the free cash flow conversion was a bit lower than I was thinking coming into the year.

Maybe you could just comment on some of the drivers there and what we should be thinking in 2018 once Codman comes onboard? Thanks..

Sure. So relative to the organic growth and how we see the year laying out, 5% to 6% Q1, I would expect it to sequentially improve for each of the quarters during 2017. So we're not going to give specific guidance on each of the quarters, but going up sequentially from a growth rate perspective throughout 2017 is where we thinking about it.

And again, the main reason behind that is the new product launches we talked about earlier on the call, especially around the regenerative portfolio, along with three product launches we're going to be doing in our Specialty Surgical business. We're going to be adding over 75 commercial resources.

It's going to take time to get sales force effectiveness from those sales reps. So, those are the key drivers in my mind that drive the sequential improvement in our organic growth rates. Relative to free cash flow conversion, I think 2017 is going to have a lot of one-time cash outlays associated with the integration of these two acquisitions.

So the guidance that we gave contemplates pretty significant one-time cash outlays here in 2017. We're not ready to give guidance yet on 2018. I think when we get closer to the – close of the Codman acquisition, we can provide that.

But once we move past the one-time costs over the next couple years, clearly, we'd like to see ourselves getting back towards the targets we have laid out, which is 95% free cash flow conversion. But again, it's going to take us longer to get there now with these two acquisitions and a lot of the integration costs..

Thanks..

And we will go next to Matthew O'Brien. Please go ahead..

Thanks so much. Good morning, everybody. Just talking a little bit about – your commentary about PriMatrix and SurgiMend, and the sequential improvement that you saw. I'd love to hear a little bit more about some of the drivers that you saw there.

And specifically on the new accounts side, that transition that you were able to generate as far as get some new accounts onboard, how has that gone and what are some of the pull through opportunity you see out of those accounts going forward?.

Yeah, Matt, I think, look, in a word, it's focus. I had mentioned on some previous calls that the OTT sales organization that had the inpatient PriMatrix, they also had ankle products, they had a lot of the orthopedics, they had a lot of new products, and we were kind of bumping up on capacity.

Some of the adds that we started in the fourth quarter that are going to take place in the first part of the year are a combination of, I'll say, beginning reps that can help actually on orthopedics cases, that can free up our senior guys to sell into tissue areas, as well as expanding some of our tissue capacity selling resources. So that's one.

I think they just didn't have the focus on it. We increased focus within Q4 and had double-digit increases in the U.S. sales force within those areas. And it takes time to open up some of these accounts, particularly if you're using larger size product in reconstructive areas, you're kind of talking about not routine stuff.

So to give you a contrast, a diabetic foot ulcer, there's a pretty defined protocol of what someone does, how they do it, someone comes into your hospital and has a really nasty motorcycle accident, everyone's different, right, relative to the degloving, the issues associated with it.

And so to adopt a new product to use in those types of cases, it takes time. You need to spend multiple weeks with that doctor within that account, while they're using it. And I think starting out, we weren't giving that type of attention that was needed. That's increasing. And I think that's what's going to drive more adoption over time.

That coupled with new things to talk about.

So in this space, we were missing some sizes, we were actually missing some other areas within the SurgiMend side that were pretty critical within the hernia space, that we think we'll talk about that are going to address some challenges that clinicians have and also bridge some of the clinical difference of why a biologic is much better than a synthetic, but there could be challenges to the total cost.

And we think we've got some interesting opportunities within that. So again, it's a combination of channel increase and focus and then new products to address specific needs. And again, I think 2017 will be the year where we'll start getting some traction within this area..

Helpful, and then as a follow-up on the extremity side. It seems like you're focusing on the foot and ankle side going forward, and maybe it's my own ignorance here, but the portfolio that you have on the total ankle side is pretty good. I don't know if you'd have a fuller bag elsewhere among other ankle procedures.

So do you have the bag that you need right now to sell effectively into that market as you're building out the sales reps? Are you going to be adding quite a few sales reps this year and maybe next year as well specifically on the foot and ankle side? And then, are you going to back that up as well with a lot of medical education because that tends to get pretty expensive?.

Yeah. And so we've got medical education factored into this, and you're right. So that's part of the investment dollars that we have within the spend this year, within SG&A and some of the clinical work that needs to be done tied with R&D. But, look, to your question, clearly, we've got a winning portfolio within the ankle area.

So either in fixation or when it comes to ankle arthroplasty, I think we've got a world-class portfolio. And so, we also have a very strong shoulder product, we also have some strong upper areas, whether it be a leading wrist replacement, all the digit components, the nerve replacement.

But when you have a market as hot as ankle, with two of the best products out there, the associated fixation, are you going to put a little bit more focus on that because of the timing of the market, the answer is yes. So I think you're kind of hearing is correctly.

It doesn't mean the other areas aren't as important, it just means that where we are in the market with competition and actually how much conversion's taking place in the market, it will tend to be an area that we're going to put more focus on because of the opportunity at hand..

Very helpful. Thank you..

And we will take our next question from Steven Lichtman. Please go ahead. Your line is open..

Thank you. Hi, guys. Pete, you alluded to private label maybe starting to accelerate in the back half of the year, now with the new capacity in New Jersey.

Can you take a step back and talk a little bit more about that opportunity ahead? How much of a growth driver you see that being? And I believe it is operating margin accretive as well, correct?.

It is. Yeah. So Steve, I'll comment, maybe I'll have Glenn jump in on a few comments.

As you well know, we've talked about with our new facility and still running our previous facility until we get all of those products shifted over that we're going to be in a position where, for the next few years, we're going to still have our older facility as we move everything into new area, a lot of that's tied to registration timing and conversion.

So what that means is, over the last few years, we've opened up a lot of capacity that we can utilize for our own products, but where it really fits into our platforms we can do private label deals. And so within the Orthopedics and Tissue business, we've got a team focused on that.

And the short of it is, they've made some progress, whether it be in your neighbor products that are used in the dental space, to products that are used in animal health, to products that are used with some of our biggest existing private label customers that are actually adding additional lines or accelerating their geographical presence.

And I would say the pickup that we see in the second half is associated with a little bit of all of those. And relative to overall impact I think in the year, it's starting to actually have an effect, but I think it's bigger effect will be if we add more this year as it moves into 2018.

And to your point about high level numbers, it's still a smaller portion of our business. It goes up and down at one point in time, with (01:04:00) significantly bigger. Over the last few years, it decreased quite a bit, and now we're back on the climb.

Could it be a business that generates $50 million, $70 million of capacity business over time, yeah, it has the potential to do that. But I think the point here is that it really helps us two ways. When we fill that in, it helps actually fill capacity, which drives lower cost for everything in that facility.

And to your point, has operating margins, EBITDA margins that are significantly above the company average, mainly because you really have no investments in SG&A and mainly minimal, if any, investments in R&D. Glenn, I don't know if you want to add some other comments..

Yeah. I think Pete hit the main highlights, but what I would say is we would expect our private label business to grow at least in line with the overall regenerative portfolio. So think of it as a double-digit growing part of our business, as we look out over the next few years.

And again, it's a combination of growth we're seeing with existing customers, so very healthy underlying growth, plus new customers we're adding, given the increased capacity that we have. So that's the way I look at the business.

And Pete mentioned the profitability, it's a little bit dilutive to our gross margins, but certainly from the EBITDA margin perspective, very accretive, and so we love this business..

Great. Thanks. And then, Glenn, I appreciate the added color during the Q&A on extremities. The U.S. was up broadly, and you mentioned internationally down.

That international component, what is going on in terms of – I think you mentioned a transition and when do you kind of anniversary that?.

Yeah. So it's going to take us some time. So keep in mind, we're just now rolling out the Cadence ankle in a controlled market release in Europe as well as Canada. As we move to a full market release later this year, that'll start to help get some of the growth back, if you will, and replace the HINTEGRA ankle.

And with that obviously we'd expect some pull through effect with our lower extremities portfolio, but I wouldn't expect much growth in 2017. We're probably talking about 2018, which is when we'll have the full market release of Cadence and then potentially the Salto ankle as well, coupled with some other lower extremity products.

But for 2017, not expecting much of a recovery outside the U.S..

Got it. Great. Thanks, guys..

And we will take our final question from Jayson Bedford. Please go ahead..

Good morning, guys. Thanks for squeezing me in. I apologize if I missed this, but it looked like you bumped up your expectation for Derma by about $5 million to $70 million.

And I'm wondering does that reflect the timing of close or is there anything specific on the bump there?.

Hey, Jason, that's really a function of the timing of the close. We didn't have an exact date relative to when the deal was going to close. We figured it was going to close closer to the end of the first quarter, and given we're expecting it to close here in the next few days, it's more reflective of just the timing of the close..

Okay.

And, Glenn, what's the expected contribution from Derma in the first quarter?.

We're not going to give specific guidance relative to Derma, relative to Q1, but what I would say is, for the full year, it's going to be about $0.03 dilutive on a full year basis. If you model the first quarter one month, you could probably figure $0.01 or so rough order of magnitude..

And on revenue, you're not going to – you just going to keep to that $70 million for the year?.

Yes..

Okay.

And the $50 million pro forma of advanced wound care revenue in 2016, how much of that bucket was Derma?.

So, the Integra legacy portfolio ended at about $11 million....

Okay..

...the rest of it would be Derma..

Okay.

And the growth, you think, to get to that $60 million is largely the legacy Integra business?.

That's correct. Omnigraft, PriMatrix, that's right..

Okay. That's helpful. Thanks, guys..

Thank you..

And we have no further questions. I'll turn the call back over to you speakers..

Thank you. And, operator, thanks for all your questions today. Just to kind of reiterate a couple of points from the call. First, we're very much focused on driving our 2017 financial targets, committed to the 7% to 8.5% growth and hopefully you had a good feel for what the core business, the new products, and the channel expansions, how we get there.

Second, we're looking forward to welcoming the Derma Sciences and Codman Neurosurgery teams into the Integra organization. And these are unique long-term opportunities and we're committing the resources to ensure the integrations are done successfully for the company.

And third, we're committed to our long-term organic growth targets of 6% to 8% and our aspirational 30% adjusted EBITDA margins, while making all the necessary investments to sustain the long-term value. So, again, thanks for everyone listening and we'll be speaking with you all here in the near future. Thank you..

This does conclude today's program. Thank you for your participation. You may disconnect at any time..