Integra Lifesciences Holdings Corp (IART) Q2 2019 Earnings Call Transcript

IART earnings call for the period ending June 30, 2019.

Motley Fool Transcribers
Motley Fool Transcribers
Jul 24, 2019 at 12:23PM
Health Care
Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Integra Lifesciences Holdings Corp (NASDAQ:IART)
Q2 2019 Earnings Call
Jul 24, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Integra LifeSciences Second Quarter 2019 Financial Results Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Mike Beaulieu. Please go ahead, sir.

Michael Beaulieu -- Investor Relations Director

Thank you, Adra. Good morning and thank you for joining the Integra LifeSciences second quarter 2019 earnings conference call. Joining me on the call are Peter Arduini, President and Chief Executive Officer; Glenn Coleman, Chief Operating Officer; Carrie Anderson, Chief Financial Officer and Sravan Emany, Senior Vice President, Strategy, Treasury, and Investor Relations.

Earlier this morning, we issued a press release announcing our second quarter 2019 financial results. The release and corresponding earnings presentation, which we will reference during the call are available at integralife.com under Investors Events and Presentations in the file named second quarter 2019 Earnings Call Presentation.

Before we begin, I'd like to remind you that many of the statements made during this call may be considered forward-looking statements. Factors that could cause actual results to differ materially are discussed in the Company's Exchange Act reports filed with the SEC and in the release. Also the discussions will include certain non-GAAP financial measures. Reconciliation of any non-GAAP financial measures can be found in today's press release, which is an exhibit to Integra's current report on Form 8-K filed today with the SEC.

I'll now turn the call over to Pete.

Peter Arduini -- President and Chief Executive Officer

Thank you, Mike and good morning everyone.

If you turn to slide four in the earnings presentation, I'd like to start by reviewing some of our second quarter highlights. Total revenues in the quarter were $384 million, representing organic growth of 6.6%, which was above the guidance we provided in April. Our outperformance was driven by new products launches, strong US and international demand for our portfolio of neurosurgery products, the ongoing success of the Codman integration and stability in our global commercial channels.

In the second quarter, adjusted earnings per share increased 22% to $0.73 and our adjusted EBITDA margin increased 200 basis points to approximately 25% compared to the prior year. Based on our strong results in the first half, we are reaffirming our full year 2019 organic revenue growth guidance of approximately 5% and raising our adjusted earnings per share guidance to a new range of $2.70 to $2.75, an increase of $0.05 at the midpoint from our prior guidance.

In the Codman Specialty Surgical segment, we began the commercial launch of our new products ahead of schedule. These products which are being well received by our customers include CereLink, our ICP monitor, Certas Plus, our family of hydrocephalus management product and the Integra dural, our new LED Surgical Headlight. As we near completion of the integration and continue to leverage our experienced R&D team, we're well positioned to increase investments in our existing product pipeline and pursue external opportunities in the second half of 2019. We're also pleased to announce that in late June, we successfully completed our first clinical case using DuraGen in Japan. As a reminder, DuraGen is the first and only collagen xenograft approved for use as a Dura substitute in Japan and we're proud to be able to offer surgeons a proven product that has benefited more than 2 million patients. During the second quarter, international revenue growth in both our segments achieved the highest level since we closed the acquisition. International scale is one of the strategic benefits we expected to achieve from the Codman acquisition. And as we exit the second quarter, we've taken control of commercial activities in the majority of Day 2 countries. Next month, we expect to close the transition services agreement in Japan, which represents the last substantial Codman TSA. Where our guidance reflects some risk in the third quarter as we complete our integration work, we're confident that we have the right structure in place and are making the right investments to achieve scale and growth from our international markets.

Moving to our Orthopedics and Tissue Technologies segment. Wound reconstruction grew mid-single digits in the second quarter. Sales in outpatient wound care increased double digits over the prior year with strength in products like MediHoney and Total Contact Casting as well as our advanced tissue product portfolio, which saw growth accelerate sequentially from the first quarter. In our Surgical Reconstruction channel, global sales of SurgiMend increased double digits. We believe there are significant global opportunities to expand this product line for plastic and reconstructive procedures and plan to make additional investments in the second half of 2019. Second quarter performance in our orthopedics business was flat despite case scheduling delays by several high volume users and to the first half of 2019, orthopedics has grown at a low single digit rate. As we move into the second half of the year, revenue growth should increase to a mid-single digit pace, driven by recent launched products and our dedicated orthopedics channel.

To summarize our performance in both segments through the first half of 2019, we're on track or ahead of our full year financial and operational goals. Wrapping-up our second quarter highlights, I'd like to congratulate Glenn Coleman on his recent promotion to the newly created role of Chief Operating Officer and welcome Carrie Anderson, who was appointed Chief Financial Officer.

Glenn's proven leadership and deep understanding of our business make him an ideal candidate to assume the day-to-day operations of the company. The creation of this role will give me more time to focus on executing our long-term growth strategy. Carrie joins our executive leadership team from Dover Corporation, a diversified global manufacturing company. She brings broad-based global financial experience as well as expertise in manufacturing and engineering. She most recently served as Chief Accounting Officer and Corporate Controller of Dover, responsible for Corporate Accounting and Global Financial Planning. The creation of the COO position and the addition of Carrie as CFO will expand the capabilities of our executive leadership team, drive consistency in our execution and further enable the company to achieve our goals.

Now I'd like to turn the call over to Carrie to make a few comments before Glenn discusses our second quarter financial performance. Carrie?

Carrie Anderson -- Chief Financial Officer

Thanks, Pete and good morning. I'm excited to join Integra as we enter a new period of growth for the company. And as Pete mentioned, most of my professional experience has been with complex finance and manufacturing operations and while I'm only four weeks into my new role at Integra, I'm impressed with the quality of the finance organization under Glenn's prior leadership and I look forward to working with the team to accelerate Integra's growth. I would like to thank, Pete, Glenn and all of my colleagues at Integra who have assisted with my on-boarding thus far and I look forward to getting on the road over the coming weeks and months to meet with employees and the broader investment community.

And with that, I'll hand the call over to Glenn.

Glenn Coleman -- Chief Operating Officer

Thanks for the kind words Carrie. We're off to a great start with the transition and I look forward to partnering with you in my new role.

Turning to the second quarter, total revenues were $383.6 million, representing growth of 4.8% on a reported basis and 6.6% on an organic basis. This better than expected performance was driven by broad strength across our Codman Specialty Surgical or CSS segment, both in the US and outside the US. Our strong top line results led to adjusted earnings per share, that was $0.06 above the top-end of our guidance range and represented growth of 21.7% over the prior year period.

If you turn to slide five, I'll review our CSS segment. Reported revenues were $249.2 million in the second quarter, an increase of 6.2% on an organic basis. Within our global neurosurgery business, sales in dural access and repair increased low-single digits compared to the prior year's quarter with growth in both grafts and sealants. We expect to see growth continue at this pace for the remainder of 2019. Sales in flow and pressure monitoring increased double digits and were well above our expectations. As Pete mentioned, our strong sales performance was largely driven to the relaunch of our service plus portfolio, which includes new valve configurations [Indecipherable] at a clinically focused marketing program. The franchise also benefited from stronger demand from early adopters of our CereLink ICP monitor. With this recent product launch, we're investing and expanding neuro critical care specialists who can provide in-servicing education and customer support. Our commitment to the unique needs of these compromised patients will now include both increasingly comprehensive portfolio of solutions coupled with the attentive clinical support the customers expect and deserve. In second half of the year, we expect these products will be the two fastest growing product families within CSS and will grow double-digits. Wrapping up the discussion of our neurosurgery business, sales in advanced energy increased approximately 5%. Sale of the CUSA Clarity and the associated recurring revenue stream from our disposable products outside the US drove this growth. Our full year guidance for this franchise assumes low to mid single digit growth as selling cycles for capital equipment will likely extend due to competitive product launches.

Moving to precision tools & instruments, revenues to increase mid single digits compared to the prior year with strength in acute surgical instruments and cranial stabilization. In July, as part of our ongoing strategic portfolio analysis, we made a difficult decision to announce the future closure of our locations in Pennsylvania and Mexico. These sites make endodontic products and accessories such as dental files and mirrors. The shutdowns will result in an estimated annual revenue impact of $10 million with minimal impact to adjusted earnings per share since these are low-margin products. For the remainder of the year, we're guiding PT&I for low-single digit organic growth, in line with the long-term outlook for this business.

CSF international sales were clear bright spot in the quarter, increasing 9%, driven by commercial stability in Europe, solid execution on Day two countries and strong growth in Canada, China, and Japan. Based on a strong first half performance and second half expectations for each of the CSS franchises, we're modestly increasing our CSS reported revenue growth guidance for the full year to slightly greater than 2% and are also raising our organic growth guidance to slightly more than 4%.

And then I will move to our Orthopedics and Tissue Technologies or OTT segment on slide six. Second quarter revenues were $134.4 million, representing an increase of 7.2% on an organic basis compared to the prior year. Wound reconstruction increased mid single digits in the second quarter with growth coming from our outpatient wound care portfolio and plastic and reconstructive products, both of which grew double-digits. In addition, our inpatient business increased mid single digits in the quarter, driven largely by sales of PriMatrix. Revenues in our private label business grew 15% largely due to timing. As a reminder, the private label business can be lumpy on a quarterly basis, but over the long-term, organic revenues are expected to grow in the mid to high single digits. Organic growth in our orthopedics business were roughly flat for the second quarter. Our lower fixation portfolio improved sequentially, as growth in our new Panta II helped to stabilize this business. Sales in our ankle portfolio grew in the low single digits as a recent launch of XT Revision ankle is performing well despite case scheduling delays at several of our high volume accounts. Our upper extremity product lines increased mid single digits with growth in both our shoulder and wrist. We expect organic growth of orthopedics business to accelerate into the mid-single digits during the second half of the year based on new product launches and increasing momentum of our focused sales channel. International sales within OTT increased double digits, driven by strength in our regenerative portfolio in both Europe and Canada. For the full year 2019, our reported and organic growth guidance for the total OTT segment remains unchanged.

Turning to slide seven. I'll now review the key P&L components below revenue for the second quarter of 2019. GAAP and adjusted gross margin were essentially unchanged from the prior year. Our adjusted EBITDA margin was 25.5% in the second quarter, an increase of 200 basis points compared to the prior year and was driven mainly by improved operating leverage. Based on a strong second quarter performance, we now expect to be at 24.5% for the full year, which is at the high-end of our previous guidance range. Our adjusted tax rate was 18.8%, in line with our guidance, about 4 points higher than last year due to a lower deduction from stock-based compensation. GAAP earnings per share were $0.34 in the second quarter compared to $0.14 in the prior year. Adjusted earnings per share were $0.73, representing growth of nearly 22%. The improvement was the result of higher revenue, improved operating leverage and lower interest expense.

For the full year 2019, we are reaffirming our total reported revenue guidance range of $1,515 million to $1,525 million, representing growth in a range of 3% to 4% and organic revenue growth of approximately 5%. Moving to earnings per share, we're reaffirming our GAAP EPS guidance range of $1.46 to $1.53, however we're increasing the midpoint of our adjusted earnings per share by $0.05 to a new range of $2.70 to $2.75. For the third quarter we expect reported revenues of between $373 million and $378 million, which represents organic growth of approximately 4%. This guidance reflects a sequential decline of $5 million in sales due to timing. Roughly $3 million was in orders of our new products placed with some of our early adopters and $2 million within our private label business, both of which were realized in the second quarter. We expect third quarter adjusted earnings per share to be in the range of $0.64 to $0.67, which at the midpoint represents growth of approximately 10% over the prior year.

Turning to slide eight, I'll now discuss our cash flow performance. Our operating cash flow in the second quarter was $48.5 million, an increase of over $12 million compared to the prior year. Free cash flow conversion on a trailing 12-month basis as of June 30th was 54%, an improvement of more than 12 points over the prior year. As we indicated on our first quarter earnings call, we expect an improvement in cash flows during the second half of the year as an impact of spending associated with Codman integration activities. As of June 30th, our bank leverage ratio was 2.8 times. We maintained a strong and flexible balance sheet with cash and cash equivalents of $176 million and capacity on our revolver of approximately $1 billion to support potential future tuck-in acquisitions.

And with that, I'll turn the call back over to Pete.

Peter Arduini -- President and Chief Executive Officer

Thanks, Glenn. If you turn to slide nine, I'd like to provide a few summary thoughts on the Company relative to the focus areas as we communicated in February. Our strong financial results in both segments through the first half of the year give us confidence that we can achieve our full year 2019 financial targets. We've launched 10 new products into a larger and more focused global commercial organization on or ahead of schedule. We also achieved the fastest growth from our international business since we closed the Codman acquisition, which help to drive better than expected performance in the second quarter. With organic revenue growth of 4.9% through the first half of the year, we've reduced the ramp required to meet our full year guidance of 5%.

During the third quarter, the teams are focused on exiting the TSA with J&J in Japan and taking control of all substantial Day 2 countries, thus completing the majority of the commercial integration work associated with the Codman acquisition. As these integration activities wind-down, we'll make further investments in our product pipeline to drive future growth and this is an area I find to spend more timeline and is a benefit of our new leadership structure. With our global scale in the neurosurgery market and a highly effective commercial channel, we're investing in technologies that can drive upsides to our plans. On the Orthopedics and Tissue Technologies side of the house, we're investing to meet the increasing demand across our regenerative portfolio. We're increasing manufacturing capacity and resources to support our existing leadership positions and also enter new markets. Finishing the first half of 2019 in orthopedics with positive growth was an important milestone in turning around this franchise and we look to accelerate growth in the back half. Finally, with our relevant scale in neurosurgery and regenerative technologies, we continue to work with customers to develop value based healthcare products and services and deliver them through our innovative contracting solutions.

In summary, we believe we have the team and plans in place to achieve or beat the goals we set in 2019 and expect to see organic revenue growth accelerate above 5% in 2020.

That concludes our prepared remarks. Thanks for listening. And operator, would you please open-up our lines for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] We'll go first to Raj Denhoy at Jefferies.

Peter Arduini -- President and Chief Executive Officer

Good morning, Raj.

Operator

Raj, you may have your line unmute. Hearing no response. We'll move to Matt Miksic at Credit Suisse.

Peter Arduini -- President and Chief Executive Officer

Good morning, Matt.

Matt Miksic -- Credit Suisse AG -- Analyst

Hey, good morning. Thanks for taking the question. I think we're all is going to juggle-in multiple calls here. Can you hear me OK?

Peter Arduini -- President and Chief Executive Officer

Yeah, we can.

Matt Miksic -- Credit Suisse AG -- Analyst

So congrats on a strong second quarter and sort of progression that you've talked about throughout the year kind of improving visibility and growth and I just wanted to maybe get a sense, Q3 feels like a transitional quarter and wanted to get a sense of maybe what some of the key drivers are in Q3 in terms of new products or continued momentum in new products or sort of improving visibility and do we get those in the third quarter at the end of the third quarter. How to think about this sort of pivoting pivot around Q3?

Peter Arduini -- President and Chief Executive Officer

Yeah, I would say Matt look, if you think about Glenn commented about we [Indecipherable] in Q2 that we were expecting in Q3 again was about $5 million at some levels with new products, some of those private label. So we talked about 2 million of private label, which you remember is lumpy but that business continues to do well and the other portion of the three was tied to actually to some of our new monitor launches, which are being perceived very well. But fact is we actually had uptake sight unseen with the monitors and those sales came in sooner than we expected. Typically we demo the product. There's a whole value discussion and then it takes place and so we benefit those earlier in Q2. And as it relates to Q3, I think all those launches we expect to continue to advance and grow, most of the products that we launched either in OTT or CSS have about a three-year peak sales window. So with us only being six months into, we're very early into this cycle and we think all of those are going to perform at a much higher level.

So I would say if you think about Q3 across the board, OTT through our plastic and reconstructive, our wound care products, advanced wound care, we expect all of those to continue to perform well and all of the new products within CSS. I think the one hedging point that we laid out is the fact that there is some new competition that's coming into a few areas. We've talked about that. We think we've got products that are actually superior, but the fact is that the demo cycle, the time customers will take to look at down will extend the sales cycle out and that's part of why we've been a little bit more cautious about how we think about the overall third quarter.

Glenn, you may want to add something to that.

Glenn Coleman -- Chief Operating Officer

Yeah. The only thing I would add relative to the third quarter is, keep in mind, we're going to be getting off of our last significant TSA with J&J in Japan. The reason why it's last, it is the most complicated one and while we've done these really well, previously, we're being a bit cautious relative to expectations in Japan. We're going to have to put a lot of resources on this to make sure we get it done right and I would also say still being cautious on Day 2 countries, we've taken most of those over now, seeing better performance, but going to continue to be cautious through the back half of the year until we see a trend of consistent growth coming out of these countries, but all-in-all combination of those items, the new competitor entrants into the CUSA capital space is causing us to be a bit cautious in Q3.

Matt Miksic -- Credit Suisse AG -- Analyst

Fair enough. And then just one follow-up if I could on sort of the regenerative medicine and value-based strategies that you've taken in approaching wound care and outpatient wound care in particular. Any clinical data, any progress that you're gaining traction on that front be it or any notable dynamics in those end markets that you call out?

Peter Arduini -- President and Chief Executive Officer

Well, for competitive reasons, I wouldn't give real specific examples, but in short, yes. I would say both had good dialog with CMS about how the whole model is working also in other folks, and then with individual IDNs that have their own insurance programs I think we've been able to have some very good dialogs about this discussion that we've had with investors and analysts over the past few years about products that can actually heal someone in fewer applications and lower cost and how that may relate to the reimbursement structure. I think we're starting to get more receptivity to that. We're starting to see a pickup in some of those products, but that component of value, particularly in outpatient is something that we're focused on and feel very confident that again over the long run, we're going to start seeing more pick-up related to a product that heels faster at lower cost.

Matt Miksic -- Credit Suisse AG -- Analyst

Super. Thanks again for the color and congrats again.

Peter Arduini -- President and Chief Executive Officer

Thank you.

Glenn Coleman -- Chief Operating Officer

Thanks, Matt.

Operator

[Operator Instructions] We'll go to our next question from Robbie Marcus with JPMorgan.

Peter Arduini -- President and Chief Executive Officer

Good morning, Robbie.

Robert Marcus -- JPMorgan & Co. -- Analyst

Good morning and congrats on the good quarter.

Peter Arduini -- President and Chief Executive Officer

Thank you.

Robert Marcus -- JPMorgan & Co. -- Analyst

Wanted to ask, maybe you could just give us an update, it's now been over a year since you restructured and grew the sales forces. Maybe just catch us up on where we are in terms of the progress, the status versus your internal expectations. And any kind of qualitative trends or improvements you can give for for each of the sales forces and how they're working out of expectations?

Glenn Coleman -- Chief Operating Officer

Hey Robbie, it's Glenn. I'll take a crack at this one. If I look at the different sales force starting CSS, clearly we saw stability really right after we closed the Codman deal and so we've continued to see more and more progress with cross-selling synergies, which is a big area of opportunity for us and some of the value we saw with the Codman deal both in the US and outside the US. I would say outside the US took us a bit longer and now we are starting to bear the fruits of some of those cross-selling efforts that you saw here in the second quarter, in CSS we put up 9% organic growth. So doing really well there. So I would say all-in-all, the seats are filled, the channel is very stable capitalizing our cross-selling synergies, especially now outside the US and we've got a whole bunch of new product launches are going to be putting through these channels. So I feel really good about that. The key thing around the CSS channel going forward is going to be adding more specialists. So a good example of that would be in the neuro critical care space, mentioned that also in my prepared remarks, we will be adding more specialty there. And if we look outside the US, we're going to be adding more commercial resources in places like Japan where we have a lot of new products that we're just launching there as well. So I feel really good around the channel. We've seen that come through in the results overall for the segment. We grew in the quarter over 6%.

On the OTT side as we talked about the beginning of 2018 and doing the channel split, I think in the beginning we saw a really good stability on regenerative side, on the inpatient side, but took us longer to ramp the channel on the orthopedic side. As we got into 2019, obviously we saw more stability, we filled most of those roles and saw a progress in the actual business performance. And I would say we're right on plans for orthopedics for the first half of this year, seeing growth for the first time in a number of years and again a lot of that coming out of our ankle and shoulder portfolio. But all-in-all, we feel really good about where we are with the channel there as well. So both sides I would say are stable, progressing well and we're adding resources where we see growth opportunities.

Pete, if you add anything to that?

Peter Arduini -- President and Chief Executive Officer

No, I think you covered it. I think just the other parts I would say our turnover in our field force is probably at lowest it's been in the last three years, which is a good sign relative to we chose the right folks, people feeling good about other opportunities and to Glenn's point, although we've kind of filled all the seats, there's clearly selective opportunities to add as we add specialist to support some of these new launches in some of the new market areas. So I mentioned plastic and reconstructive surgery moving into the [Indecipherable] reconstruction space, particularly outside the United States, the opportunity that will lend down the road in the US. We've got some pretty good things set up and we're quite happy with the changes that we needed to make in the channels and I think the fruit they will bear here in the coming years.

Glenn Coleman -- Chief Operating Officer

And clearly we're seeing an increase in the productivity levels of the individual, especially in the OTT side and you're seeing that really reflected in some of the EBITDA margin expansion. So we had one of best quarters in probably three or four years on EBITDA margins. We're getting leverage on the selling and marketing line as well, because our reps are becoming more productive. They will be bettering the role for a while and our growing sales in each of those channels.

Robert Marcus -- JPMorgan & Co. -- Analyst

Great. And then a quick financial question. You raised EPS guidance, you kept free cash flow guidance the same, but the free cash flow came in a little lower than at least we were expecting. Maybe just talk about some of the puts and takes over the balance of the year and your confidence in the free cash flow guidance. Thanks.

Glenn Coleman -- Chief Operating Officer

Yeah. I would say on the free cash flow side, one of the things that we're working through is a lot of these new product launches. So, we're seeing higher inventory levels as we build inventory in support of those product launches. So that's one of the drivers. That will get better in the back half of the year. And in addition, we're going through some legal manufacturing changes with Codman and as you do that you have to build inventory as you go through the regulatory approval process. So that's what you're seeing in the first half of the year. Clearly, we expect better performance in the back half, between increased profitability, some improvements in working capital and lower one-time charges that are cash related relative to the Codman integration. So you should expect to see better performance for sure in the back half of the year. But from our perspective, we're pretty much on plan on those metrics, are a little behind on inventory, but again that's a timing issue.

Robert Marcus -- JPMorgan & Co. -- Analyst

Thanks a lot.

Peter Arduini -- President and Chief Executive Officer

You're welcome.

Operator

We'll go next to Ryan Zimmerman with BTIG.

Peter Arduini -- President and Chief Executive Officer

Good Morning. Ryan.

Ryan Zimmerman -- BTIG LLC -- Analyst

Good morning. Carrie, congrats on the new role. Glenn, congrats on the promotion and on a strong quarter. I just want to follow-up on the question, Matt had asked earlier around wound. You called out a couple of things, but maybe just help us understand, maybe what's occurring in the strength and wound, is that driven by potentially some newer accounts, is that deeper penetration. Are you seeing continued disruption competitively. Maybe just help us understand what the dynamics are in wound and then I have a follow-up on gross margin.

Peter Arduini -- President and Chief Executive Officer

Yeah. I'd say Ryan, it's a little bit of all of the above. I think it's a combination of we have a stable channel now, we've been able to kind of develop that through, that's where it starts and they have a very nice quarter. We have been able to open-up some new accounts. Some of that is the conversion of the Healogics business and getting into new accounts there. We've also had some good results in the VA. So combination of openings new accounts getting deeper into existing accounts for sure and so we had very strong growth within our matrices product, PriMatrix and our Amnio products all did well, on the graft as well doing, so those all did well. And then as you know in that portfolio, we have some slower growth products that are typically high single-digit growers, such as the cast or even MediHoney and that acceptance of those products being used to drive compliance or using products like MediHoney more broadly in other wounds that aren't as acute is definitely starting to pick up. So when you pull all those together, really probably put up the best quarter we've seen in some time and I think it's not a one-time event. We feel pretty confident that we're starting to kind of get the right tailwinds in outpatient wound care. There is some disruption in the market, but like most of the things, there is a lot of strong players out there, there's a lot of good things going on. I think this is just as people really start to understand our broader portfolio, we can be more of a one-stop shop and we're starting to pick-up more accounts because of that and our ability to contract.

Ryan Zimmerman -- BTIG LLC -- Analyst

Helpful. And then gross margins a little bit lower than last quarter and with wound as strong as it was in the quarter, Glenn, was that a result of private label or the strength you saw in private label impact in second quarter gross margin, give something else to call out.

Glenn Coleman -- Chief Operating Officer

I think it's a good question and you're pretty much spot on, it's really a mix. So if you look at where the growth came from in the quarter, private label obviously is a big driver of that, that has lower gross margins, but higher EBITDA margins. So that helped our EBITDA margin story, but obviously impacted gross margins. Also the strength in both our instruments business, which carries lower gross margins and our international business were the drivers. So those three areas in general carry lower gross margins than the corporate average and bought the overall gross margins down slightly. In addition, we're making some investments in our regenerative plans to build-out increased capacity. So that's also impacting both Q2 and what we expect to see in the back half of the year to get to our full year guidance.

Ryan Zimmerman -- BTIG LLC -- Analyst

Okay, helpful . Thank you again.

Operator

We'll go next to Steven Lichtman at Oppenheimer & Company.

Steven Lichtman -- Oppenheimer & Company -- Analyst

Thank you and congrats everyone. I guess first Glenn, you just mentioned on the manufacturing expansion in regen. Can you just update us on where you're at with that and once it's complete, what it's going to allow you guys to do?

Glenn Coleman -- Chief Operating Officer

Yeah. So, we're really talking about several of our regenerative plans, one in Memphis, Boston and the plant here in Plainsboro. So in Memphis as you know, as we make our amniotic tissue product, a huge area of growth for us, a huge potential area of further growth in the future. So we're increasing capacity in that plant. And just to put in the context, we probably doubled capacity since the beginning of the year and we expect to have four times the capacity by the end of this year. And so what we're doing is we're adding shifts, increasing raw material suppliers for centers, adding clean rooms to that facility to increase the capacity there, but I would expect it's going to take us still another six months in investments to get us to where we want to be. In Boston obviously working through plans there as well. SurgiMend has made up there on PriMatrix. These are very fast-growing areas as well and so it's a relatively small plan and we're looking at ways to build our increased capacity and change some of the process steps there to drive more product in the field, which will drive more growth down the road . And then here in Plainsboro obviously, we're continuing to work on how to increase capacity here as well, by adding more LIOS as an example. So all-in-all, lots going on and we're really making these investments to support what we believe will be a very fast growing areas for us over the next five years.

Steven Lichtman -- Oppenheimer & Company -- Analyst

Got it, thanks. And then just one, excuse me, on CSS. So you've talked about getting close to the end of the integration and things are stable and starting to turnkey. Now talk about some of the synergies you're expecting to see from Codman, whether cross-selling or some of the enterprise selling that you talked about sort of as we transition into from the integration?

Peter Arduini -- President and Chief Executive Officer

Steve. So it's a good point. Relative to the Codman and what it's done now for the business, we clearly have a number one position. We've got the size and scale really in all markets around the world that we compete to be able to have ceded to table for favorable contracting discussions aside. So we're seeing the benefit of that and the first benefit comes you have an account, we sell 30 products in neuro in that account. There's only 20, you have an opportunity to talk about the other 10 and find ways to bring that and we're starting to see some of that happen across the globe. So I think that's point one.

Point two is, with the new product launches I just give a big shot-out to our R&D team has done a tremendous job with the products, partnering with our marketing team to really build their right health economics wrapper around us and we're just really starting to see in a lot of places such as like our Hydrocephalus valves and the monitors, people really taking a look and saying, I wasn't necessarily thinking about changing price, you build such a strong case here, why I may want to competitively convert or why may I want to upgrade my technology now because of the features you brought, the productivity you brought, the ease of use you brought or my long-term savings as user. We're starting to see that change and obviously when you bring a product and a program that's innovative, it makes someone stops sometimes ago, maybe I should look at everything else and think about it and I think that's what's going on right now and to Glenn's point took us a little bit longer OUS, but we're seeing a very similar thing and unique part of our neurosurgery is, it's actually a small homogeneous community around the world and procedure that gets done at the Mayo Clinic or gets done at some other institutions around the world, they all know about it pretty quickly because it's a small community. So if you can play that leadership role and drive change, you can effect change around the world pretty quickly and we're starting to see the early signs that that's possible. So feeling pretty good about that uptake and our ability to kind of use the scale to expand our footprint.

Steven Lichtman -- Oppenheimer & Company -- Analyst

Great, thanks guys.

Operator

We'll take our next question from Matt O'Brien at Piper Jaffray.

Matthew O'Brien -- Piper Jaffray -- Analyst

Good morning, thanks for taking the questions. So I think that everybody is looking at the Q3 guidance and maybe a little bit light versus what people were expecting. You kind of talked a little bit Pete and Glenn about about the reasons there and I'm curious though there is a couple of competitors bigger consolidator that's bought a product EnDura and then a new competitor to keep that it's rolling out right now. How much of those dynamics have you incorporated into the Q3 and Q4 guidance specifically?

Glenn Coleman -- Chief Operating Officer

So we've covered all those in our guidance. I mean, we've taken a look at a couple of other aspirator competitors. I would argue that what we've done bottoms up comparison against down we have a better product that performs very well, but the fact is customers are going to look, they respect those other players, they're going to want to take the time to kick the tires so to speak. And so when I talk about longer sales cycle, we believe we're still going to win more times than not and so that's all factored in, but sales cycle when you're the only wanted to do it might be 60 days, sales cycle when you got to look at two other players, maybe 120 days. So that's factored in.

On the dural sealant side of things we've been competing since the first quarter with the new ownership, I think both of these are obviously talking the story, which is half the users still don't use a respective dural sealant. They may be using something like vibrant or nothing at all other than basically tutoring [Phonetic] and so at this point in time, I think both are continuing to grow. We have tempered the amount of growth in our plants this year and I think as you think about Q3 we want to get another quarter behind us before we would talk about any other accelerations in those two categories. But for sure we feel that I'd say cautious into our plants until we get a couple of quarters behind us and really see those products rolled out. In the case of some of the tissue ablation products, most of those from the competitors aren't shipping at this point in time.

Matthew O'Brien -- Piper Jaffray -- Analyst

Got it. That's very helpful. And then second follow-up question is on DuraGen in Japan. You mentioned you did your first case there. It's a big growth driver for you guys. How aggressive are you going to be with that roll-out there and how do we think about modeling that product for '19 and '20?

Peter Arduini -- President and Chief Executive Officer

So it's clearly the biggest opportunity from a new product launch perspective or in new product registration I should say perspective outside the US in 2020. Part of our thinking is we're going to be adding more resources to support DuraGen to support the CUSA Clarity launch that we just did there. So I would just say we're not to give any specific numbers, but again just keep in mind, we still have to get through the TSA exit here in August. Once we do that, more people are focused on selling if you will, but I don't want to give a specific number for it, but you can look for us to be talking about very strong growth coming out of Japan in 2020 as a result of these new product launches including DuraGen. And just keep in mind for us. Japan as a market size, you could think of it as a $40 million to $50 million type market.

Matthew O'Brien -- Piper Jaffray -- Analyst

Helpful. Thanks. Thank you.

Peter Arduini -- President and Chief Executive Officer

Yeah.

Operator

We'll next to Craig Bijou at Cantor Fitzgerald.

Craig Bijou -- Cantor Fitzgerald -- Analyst

Good morning, guys, thanks for taking the questions. Just have a couple on some of the comments that Pete you made. Let me start with the, you're looking at external opportunities in the second half. And obviously I know you guys have been in acquisitive company and now that it seems that Codman integration is winding down. Just wanted to kind of hear your renewed thoughts given the call out on the, in the script on what you may be looking for in external opportunities whether it's Codman side of the business, OTT and maybe size profile?

Peter Arduini -- President and Chief Executive Officer

Yeah. Craig, look, thanks for the question. So a big part is, to your point, we've obviously done a lot with the company building out with smart acquisitions typically talking Codman was kind of the eyeball relative to overall scale and I would say, again, is it part of what our strategy is to look for Codman-ish deals. The majority of our focus is really on tuck-ins and the area that we're looking at is really how we find key components that continues to build this relevant scale point. Take select parts of our business and moves us into maybe a number four position even in sub-category into a number one or number two. And again the focus on this as more consolidation takes place on all of our customers, on the payers. We want to be even though we may not be as large as some of our biggest competitors, we want to be very large in those segments we compete. So think about us going into and buying technologies as well as operating companies to help build out that portfolio. That actually then brings a better answer to a productivity solution for the customer and therapeutic, I would say with our scale, particularly in the regenerative side as well as in CSS we do have the opportunity to take some technologies into the house so to speak that solves some of the bigger issues in our segments that haven't been addressed before and we're looking at things like that what causes some of the major issues for a neurosurgeon, what causes complications for a patient that if we can do these things we did kind of changed the trajectory some to differentiate that treatment for a patient and generally how Integra's perceived. So I'd say both sides of the house we're looking at those.

In OTT area, there is some near neighbor new green space areas whether it'd be if we think about breast reconstruction and leveraging the products that we have and potentially other technologies or products that could help fill-out a bag on a clinical area that could make us a one-stop shop. So that kind of feel for the things we're looking at and we're obviously conscious of what valuations and things look like, so between private as well as public opportunities we're scanning the area wide and as you know in my capacity as CEO and now with Glenn and Carrie on board, I plan on spending a lot more time here and particularly the farming aspect of really trying to getting out, taking a hard look at the landscape. I would say I wouldn't expect that you see a flurry of deals anytime soon, but we've got a really good pipeline on both sides of the house and you know how this plays out. They start coming in at different times based on how it's playing out together, but I would say we've got a nice pipeline and now that we've got the integrations fundamentally completed our capacity to bring in other deals I think is going to increase.

Craig Bijou -- Cantor Fitzgerald -- Analyst

Great. Very helpful color, Pete. Thanks. And on your comment on organic growth accelerated in 2020 and I know you guys have touched on a couple of the potential growth drivers, but I wanted to ask maybe more directly, when you look at the OTT business and the Codman business, how do you see the acceleration playing out for the overall company whether it's OTT, accelerating Codman and then if there is any color, general color I know you're not probably going to provide specifics, but any general color on some of the sub-segment drivers within each of those business for 2020? Thanks.

Peter Arduini -- President and Chief Executive Officer

Thanks, Craig. I would say a couple of things, it's overall before I talk about segments. We're not going to give too much color at this point given where we are in the year, but [Indecipherable] in faster growth in 2020 is a combination of a couple of factors. First, having a full year impact of new product launches, which impacts both segments. So we've got a best launching list of CSS products we're rolling out, same thing on the orthopedic side of the house and so that'll be a nice contributor to faster growth in 2020, will be past the Codman integration and that will be nice to say as we get past the third quarter here. So not having disruption we saw in the first quarter of 2019 and having a more stable business outside the US going into 2020 should be a positive for us [Technical Issues] orthopedics expecting faster growth and we got more focused channel with these new product launches, private label, a lot of our private label partners I would say are seeing good end market growth, which will benefit us. And just the fact we're going to be adding more resources like I mentioned earlier. So neuro critical care area adding specialist there Japan as an example. And so I would just say, those are the factors that give us confidence we're going to see faster growth next year and I would expect the growth to be in both segments. But at this point we're not going to give any further color on guidance for 2020.

Craig Bijou -- Cantor Fitzgerald -- Analyst

Got it. Thanks for taking the questions guys.

Peter Arduini -- President and Chief Executive Officer

Thanks.

Operator

We'll go next to Jayson Bedford at Raymond James.

Jayson Bedford -- Raymond James -- Analyst

Good morning. So I jumped on the call little late, so I apologize if these questions have been asked, but just a few here. Wanted to ask about wound care plastic recon, just for clarity. Is the inpatient-outpatient mix in wound care still roughly two-thirds inpatient, a third outpatient. And then second, the double-digit growth in outpatient wound care, is that level sustainable going forward, meaning double digits?

Peter Arduini -- President and Chief Executive Officer

So Jayson, I think you're splits in the ballpark, I mean traditionally, it's been just even slightly a little bit more inpatient, but we're moving in that direction. As far as the growth I think relative to the overall mix of all the products, we think that the MediHoney and Contact Casting are probably not consistent double-digit growth. These are probably high single, but relative to the strong performance in the matrices and double-digit growth, we think that we see future quarters here, that will hold that growth rate and some quarters where we'll be able to accelerate beyond that.

Glenn Coleman -- Chief Operating Officer

But Jayson I would say, here is where I really think we're seeing the broad portfolio play out for us and our strategy of -- taking it based for the time they walk into the clinic to [Indecipherable], having products serving from the protect side when we walk into treating as Pete mentioned to preparing the wound bed, they really have a good strategy around the whole patient care in this space. And as Pete mentioned, mostly growth probably each of the different three buckets there, but faster growth really on the treat side.

Jayson Bedford -- Raymond James -- Analyst

Okay. Wanted to ask about extremities, which were basically flat year-over-year. You reiterated that the growth expectation for OTT, but it seems like wound care and private label are tracking better than expected. So I guess the question is, what is the expectation for extremity growth in the second half of '19.

Peter Arduini -- President and Chief Executive Officer

So we're expecting to see mid-single digit growth for the back half of the year for Orthopedics and again, that's largely driven by ankle and shoulder, which are the growth parts of the portfolio. As I mentioned, we did see a sequential improvement in the lower fixation area as well. It's still not growing, but it's an improvement than what we've done in the last few quarters. But all-in-all feel quite good around the new product launches, our new Revision ankle, some of the new products we rolled out in shoulder like our small post baseplate. We've also got a really nice pipeline coming with Short Stem and Stemless Shoulder. But I would say relative to the second half of the year, mid single-digit growth is where we're modeling.

Jayson Bedford -- Raymond James -- Analyst

Great. Thank you.

Operator

Will go next to Larry Biegelsen at Wells Fargo.

Peter Arduini -- President and Chief Executive Officer

Hello.

Shagun Singh -- Wells Fargo Securities -- Analyst

Thank you. This is Shagun in for Larry. Can you hear me OK?

Peter Arduini -- President and Chief Executive Officer

We can.

Shagun Singh -- Wells Fargo Securities -- Analyst

Great. Pete, thank you for the color on 2020. If I could just follow up. I was just wondering that your guidance kind of implies that you would exit Q4 at about 6% growth. Is that how we should think about 2020? And then I also wanted to ask about recent management changes. Why was this the right time? And Pete, you talked about your focus on future growth. How should we think about that relative to your LRP. You also talked about a focus on M&A and I was just wondering, do you need M&A to drive growth to the high-end of your 5% to 7% long-term growth outlook? Thank you.

Peter Arduini -- President and Chief Executive Officer

Yes, Shagun thanks for the questions. I would say we're not going to give any more color on 2020. I think your math plays out correct on how the year will play out, but we'll give more details other than Glenn spoke to already as we get into our our February call window when we traditionally do it, but we feel very good about how we're positioned. Obviously having a strong Q2 reduces the ramp, which we know investors had concerns about and we're well positioned here now in the second half of the year for all the previous discussions we made.

Relative to the organization changes, why it was the right time to do it right now is we are out of size where we've doubled the size of the Company really over the last eight years. We've got some large platforms. We are a diversified Company in the mid-cap space. So there is a lot of things going on. And so the opportunity to have bring someone in with Carrie's background world-class capabilities to help take the finance group to the next level. Glenn had a lot of exposure to has really learned this business and again over the last few years he has not just been the CFO, but it's Ryan all the rest of the world outside the United States and demonstrated his ability to do that very well. Obviously second quarter results are a nice sign of what him and Mike have been able to pull it up. But we think we've got a lot of opportunity in front of us and a lot of that opportunity is about spending more time, thinking about where we should go, how we should build out sub-legs to the stool, how we should actually go deeper in certain clinical areas, some of those type joint therapeutic batch that need more time and focus. And so that's going to allow me in the CEO role to spend the time on that and help develop out some of those pieces where when you're doing both sides of that then you've got a lot of change on, there will be portfolio management. The fact is some of the strategy time sacrifices, so that gets resolved. And then Glenn being able to focus on the day-to-day and in particular our consistency on our execution quarter-by-quarter. And so our hope here is is that we get the best of both worlds as far as being able to build-out our longer-term growth strategy as well as being able to consistently improve our execution.

Shagun Singh -- Wells Fargo Securities -- Analyst

That's helpful. Thank you so much.

Operator

We'll move next to Travis Steed at Bank of America.

Peter Arduini -- President and Chief Executive Officer

Hi, Travis.

Travis Steed -- Bank of America Merrill Lynch -- Analyst

Hi, congrats on a good quarter. Hey, good morning.

Peter Arduini -- President and Chief Executive Officer

Thank you.

Travis Steed -- Bank of America Merrill Lynch -- Analyst

Congrats on good quarter and welcome Carrie, look forward to working with you.

Carrie Anderson -- Chief Financial Officer

Thank you.

Travis Steed -- Bank of America Merrill Lynch -- Analyst

And just wanted to ask, I know prior you thought about kind of 6% revenue growth in the back half. Now with a better quarter in Q2, you only need 5%. It sounds like some of the private label may not repeat, but it seems like some of the new products are off to a really good start. So just wanted to hear your thoughts on how realistic you think the 6% growth could still be in the back half and any reason why the new products will contribute more in Q3 and Q4 versus what they did in Q2?

Glenn Coleman -- Chief Operating Officer

Yeah. So keep in mind, part of the be in the second quarter was timing related is there are really two areas, one is the new product area, the other is private label, which we talked about. To put some color around the new product though, a lot of this is done by early adopters and what we mean by that is these are customers that are very familiar with the space, they will buy the product on-site without doing a lot of trialing and know it pretty well and so we had some pent-up demand that was built in the first six months of the year and we are expecting to get supply in mid-July, we got it about a month sooner and so we're able to ship out that initial pent-up demand if you will in the second quarter. So that was a big part of it in terms of timing.

Now you kind of have a little bit of a low because you've got to go through the normal selling cycle which includes trialing which is take us 90 to 120 days to close the sale. So if you don't see this continue to ramp, you kind of had a full ahead or a timing related item relative to early adopters. And so for the full year I'd just say our best estimate right now is just about 5% in the back half of the year, combination of the timing item that we just talked about, but also the extended cycle around the capital area that Pete mentioned, some caution just around expectations in Japan actually in the TSA, caution around some Day 2 expectations. And so we're being I think prudently cautious on a number of items. If some of these get mitigated, then there could be some upside. To your point right now, our best view is we'll do just about 5% in the back half of the year. The good news is we've de-risked the year. We almost did 5% in the first half, expect to do a little bit above 5% in the back half. And so I think a lot of the concerns is just around the ramp should be alleviated with the first half performance.

Travis Steed -- Bank of America Merrill Lynch -- Analyst

And it sounds like a lot of the upside from the new products is really around the ICP monitor. So maybe talk about the pipeline there in terms of orders that you have, how much of that pipeline -- how much of your order book you worked through already and interesting competitive accounts and longer term I'm not sure how you think about what percent of the installed base you can covert in the first year, typically the 10% or 20%?

Glenn Coleman -- Chief Operating Officer

Yeah. Again, you could view this as a multi-year cycle in terms of growth that we'd expect out of the ICP monitoring space. We're building the pipeline. We see this as a nice opportunity as you remember back going through the Codman acquisition we divested our ICP monitor because we knew this was going to be coming out of development. We thought it was a much better monitor than the previous monitor that we are selling. It gives advanced data presentation, gives clinicians away to manipulate and evaluate data to make better decisions in the neuro critical care suite. It's got a great sensor and very intuitive. So I think all-in-all, we feel really good about it. We are hearing great receptivity about it. We're adding more commercial resources behind it, but right now we're just building the funnel, we're building the ramp. And as I mentioned earlier, we had some pent-up demand from the early adopters, but now we're building the pipeline, which will take us some time, we'll see some more growth in the back half of the year. We're counting on over 0.5 coming from new products in the back half of the year, CereLink in a big part of that. I don't think we're going to comment any further than what I just said relative to the ramp.

Travis Steed -- Bank of America Merrill Lynch -- Analyst

All right, thank you.

Peter Arduini -- President and Chief Executive Officer

Thanks.

Operator

We'll go next to Raj Denhoy at Jefferies.

Raj Denhoy -- Jefferies & Company, Inc. -- Analyst

Hi, thanks.

Peter Arduini -- President and Chief Executive Officer

Hey Raj.

Raj Denhoy -- Jefferies & Company, Inc. -- Analyst

I apologize for missing the question earlier. Lots been asked. But I really just kind of want to ask a higher level question about the strategy kind of long-term. So much has been or so much of your longer-term plan seem driven on an acceleration rate in OTT. In last quarter, we saw some good result, this quarter it seems particularly in orthopedics it stepped down a little bit, but you're seeing very good results, still out of Codman, right and I think you even raised the guidance there a little bit. And so the question is really as you think about the complexion of the business over the next several quarters and years really. Is it the right focus to expect an improvement in OTT or is it really -- should more emphasis to be put on what Codman can ultimately do given everything you've described around the scale of that business and the competitive landscape?

Peter Arduini -- President and Chief Executive Officer

Raj, thanks for the question. Look it's a really important question and one you know as we do at Investor Day at some point here in the future, obviously, this will be kind of the core of it. Clearly with Codman, we do have this capability and we now have the scale that not only can we had tuck-in acquisitions in the United States, we now have this global scale, one of the big priorities that we had when we bought Codman to add things that have an impact in markets around the world, so totally agree.

On the OTT side of the shop though, I would say first of all in orthopedics as Glenn just previously commented on, we actually are in a really good position here with a very strong ankle and shoulder portfolio and finally a stable very strong dedicated sales force. So I think, yes, you should expect to see that accelerate, but probably be smaller tuck-in type plays or specifically organic developed products. When you think about the work that we've done with this CFO relationship and stuff, those are the kind of deals that I think will help build that out, but we've got all the right pieces in place there. On OTT side, we are the leader in broader inpatient and outpatient combined wound reconstruction. I think we're just starting to get the right traction here on outpatient, but I'm very excited about our future opportunity of the nerve and where we might be able to go with that, our opportunity and plastic and reconstructive, which is press reconstruction [Indecipherable] and building that out. And so we are actually starting to see some of those benefits, it's early, but I think you could expect to see us between organic and inorganic investments focus on those areas.

Raj Denhoy -- Jefferies & Company, Inc. -- Analyst

That's helpful. May be I could also just ask about nerve is kind of a second question. You mentioned particularly that product line in particular, is there any updated thoughts on new product launches there. I know kind of as the quarter was progressing, you made some comments at various forms about that and what's your current thought around the portfolio and nerve in your ability to kind of expand what you have there?

Peter Arduini -- President and Chief Executive Officer

Yeah. I would say that it's an area of interest for us. We are one of the earlier pioneers within the area. I would say that we had lost focus over the last few years. We've regained that focus. This is really a building year. We have some new products that we plan to bring out in 2021. One that we've talked about specifically is this nerve 3D product, which is a conduit that actually has an inter-core that we believe will help deliver better reach recovery of the nerves and then some other products that will be working on to fill out that pipeline. But I'd say at this point in time, it's still a very small component of our business, but when we think about the technologies and the channels that we have, we clearly believe that we can be one of the leaders in the space. And as you know, it's not a significantly crowded space. So I would say I think there's room for plenty of folks to grow as this business content continues to grow, but I'd say look to hear more about what we're thinking about nerve in 2020.

Raj Denhoy -- Jefferies & Company, Inc. -- Analyst

No, it's helpful. Thank you.

Peter Arduini -- President and Chief Executive Officer

Thanks, Raj.

Operator

[Operator Closing Remarks]

Duration: 66 minutes

Call participants:

Michael Beaulieu -- Investor Relations Director

Peter Arduini -- President and Chief Executive Officer

Carrie Anderson -- Chief Financial Officer

Glenn Coleman -- Chief Operating Officer

Matt Miksic -- Credit Suisse AG -- Analyst

Robert Marcus -- JPMorgan & Co. -- Analyst

Ryan Zimmerman -- BTIG LLC -- Analyst

Steven Lichtman -- Oppenheimer & Company -- Analyst

Matthew O'Brien -- Piper Jaffray -- Analyst

Craig Bijou -- Cantor Fitzgerald -- Analyst

Jayson Bedford -- Raymond James -- Analyst

Shagun Singh -- Wells Fargo Securities -- Analyst

Travis Steed -- Bank of America Merrill Lynch -- Analyst

Raj Denhoy -- Jefferies & Company, Inc. -- Analyst

More IART analysis

All earnings call transcripts

AlphaStreet Logo