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Integra Lifesciences Holdings Corp (NASDAQ:IART)
Q4 2019 Earnings Call
Feb 19, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

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

At this time, I would like to turn the conference over to Mike Beaulieu, Director of Investor Relations. Sir, please go ahead.

Michael Beaulieu -- Director, Investor Relations

Thank you, Katie. Good morning and thank you for joining the Integra LifeSciences' Fourth Quarter and Full Year 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 press release announcing our fourth quarter and full year 2019 financial results. The release and corresponding earnings presentation which we will reference during this call are available at integralife.com under Investors, Events and Presentations in the file named fourth 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 GAAP -- certain non-GAAP financial measures. Reconciliations 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'll turn to Slide 4 in the earnings presentation, I'd like to start by reviewing some of our 2019 highlights. As we've discussed at our recent earnings calls, 2019 was a year of significant integration work and operational investment that will position the Company for accelerated organic growth.

We achieved mid-single-digit top line organic growth and a 6th consecutive year of double-digit EPS growth. Our organic revenues for the year increased 4.8%, in line with our pre-announcement on January 14th and adjusted earnings per share increased over 13%. Adjusted gross margin increased 90 basis points over 2018 and our adjusted EBITDA margin increased 110 basis points, as we started to benefit from the scale and leverage of the Codman acquisition.

This margin expansion is a result of faster growth in higher margin products as well as our strategy of portfolio and manufacturing optimization, which we outlined in 2017. You take a disciplined and rational approach to making strategic decisions about where to compete, which enables us to take advantage of scale and create efficiencies across the portfolio. The Company remains on a path toward achieving EBITDA margins of 28% to 30% and gross margins of greater than 70% by 2022.

Turning to our Codman Specialty Surgical performance. In 2019, we substantially completed all the integration activities related to the acquisition. After two years of significant investments and integration work, we achieved organic growth of 5.6% in 2019. This growth was well above the low-single digit trajectory Codman had been on, is attributable to our expanded scale, new product introductions and expansion into faster-growing markets, such as China and Japan.

In 2019, we acquired two early stage technology platforms. The first was an anti-thrombus coating technology to reduce catheter obstructions. And the second, a platform technology for minimally invasive neurosurgery. These technologies are a natural addition to our portfolio and create clinical opportunities to expand into new, larger and faster growing markets, such as intracerebral hemorrhage and minimally invasive neurosurgery. While we'll continue to make investments in these technologies, our development and clinical progress are on track with our commercialization plans.

Looking at our Orthopedics and Tissue Technologies segment; 2019 represented a year of investment for the Company as we focused on expanding capacity at several of our facilities that manufacture regenerative products used in wound care, amniotics and plastic and reconstructive procedures. We expect supply to increase and revenue growth to accelerate beginning in the first quarter of 2020.

Importantly, our manufacturing investments have positioned the Company to meet the increasing demand and heightened regulatory requirements we expect for these products in the years ahead. In 2019, we established our -- we stabilized our Orthopedics franchise and saw positive momentum in both our ankle and shoulder portfolios, which grew double-digits and we expect global performance to improve as we benefit from the combination of new products such as the ankle revision and small post baseplate and expand our established commercial team.

In 2019 for the total Company, we introduced 10 new products, making it one of the most productive years for our product development teams. I'd like to highlight our strong line-up of programmable valves for hydrocephalus management, which demonstrates our ability to develop products with advanced technologies to solve unmet clinical needs.

And the strong performance of DuraGen in Japan shows how our new product launches are having a positive impact outside of the U.S. where our international business achieved its fastest growth in four years. With innovative marketing programs launched for many of these products and peak sales not occurring for another three to four years, these new products will be a key driver of our organic growth.

Wrapping up our 2019 performance, I think there is a lot to be pleased with. We successfully integrated the Codman business, moved to one common ERP platform, streamlined our operations and expanded our commercial organization, all of which should benefit us in 2020 and keep us on track to achieve our long-term financial goals.

Now, I'd like to turn the call over to Carrie to discuss our fourth quarter performance and 2020 guidance. Carrie?

Carrie Anderson -- Corporate Vice President and Chief Financial Officer

Thanks, Pete, and good morning. Let me start with our Q4 financial highlights for the total Company. Fourth quarter total revenues were $395 million, representing growth of 3.1% on a reported basis and 4.6% on an organic basis. These results were in line with our January 14th pre-announcement. Adjusted earnings per share were $0.68 and near the high end of our guidance range.

If you turn to Slide 5, I'll start with the review of our CSS segment. Reported revenues for CSS were $259 million in the fourth quarter, an increase of 6.3% on an organic basis. This strong performance was broad based across our franchises and was driven by commercial execution, new product launches and expansion into faster growing international markets.

Sales in our global neurosurgery business grew over 7% on an organic basis. And contributing to this performance was mid-single-digit growth in dural access and repair, led by the successful second-half launch of DuraGen in Japan. Additional sales in flow and pressure monitoring increased high-single-digits, driven by momentum in our portfolio of programmable valves used for hydrocephalus management. Fourth quarter sales in advanced energy increased mid-single-digits. Both CUSA capital sales and consumables performed well.

Moving to precision tools and instruments, organic revenues grew mid-single digits, slightly above our forecast. International sales in CSS increased over 10% on an organic basis in the fourth quarter, driven by our core neurosurgery portfolio, including new product introductions, strength across Europe, as well as double-digit growth in China and Japan.

And turning to our segment guidance; for the full year 2020, we expect reported sales in CSS to be flat to up to 2% and organic revenues to increase 3% to 5%. The difference between reported and the organic growth rates is related to our portfolio optimization strategy. Our organic growth guidance reflects balanced growth across our franchises with continued momentum in new product launches.

Moving to our Orthopedics & Tissue Technology or OTT segment on Slide 6. Fourth quarter revenues were $136 million, an increase of 1.6% on an organic basis. Sales in wound reconstruction increased low-mid single digits in the fourth quarter led by our inpatient and plastic & reconstructive portfolios, partially offset by weaker sales in the outpatient settings. Wound reconstruction sales were negatively impacted by supply constraints in the fourth quarter, but sales did improve sequentially from the third quarter.

As Pete mentioned earlier, we are making investments in capacity expansion and quality improvements at two of our regenerative facilities. During the fourth quarter, we decided to extend these investments in order to increase long-term capacity at these sites which limited production. These supply constraints were the primary reason performance in our OTT segment came in below guidance.

And moving to private label, fourth quarter sales were down slightly, but in line with our expectations. In our Orthopedics business, our U.S. sales increased low-single-digits, driven by double-digit growth in our combined ankle and shoulder portfolios. On a global basis, organic sales in Orthopedics were slightly down in the fourth quarter, driven by weakness in lower fixation sales in Europe.

Turning to OTT segment guidance; the investments made in our manufacturing facilities will improve supply and as a result, we expect 2020 sales growth to be in the range of 6% to 8% on both a reported and organic basis.

Turning to Slide 7, I'll provide an overview of our consolidated revenue guidance. As previously communicated, we expect full-year 2020 revenues to be in the range of $1.55 billion to $1.57 billion representing reported growth of approximately 3% and organic growth of approximately 5%. The difference between our reported and organic growth is primarily the year-over-year change in sales of divested and discontinued products of approximately $30 million.

Consistent with previous practice, we will include the reconciliation between reported an organic growth calculations in our quarterly reports. In terms of phasing of our growth for full year 2020, we expect organic growth in the first half to be slightly below 5% and in the second half to be slightly above 5%. And for the first quarter of 2020, we are guiding for revenues of between $367 million and $372 million, representing organic growth of approximately 4%.

Turning to Slide 8, I'll now review the rest of the key P&L components. Fourth quarter GAAP gross margins improved by 40 basis points and adjusted gross margins improved by 160 basis points. The improvement here was primarily a result of increased sales from higher margin products. For the full year 2020, we expect an adjusted gross margin of approximately 69%, representing 150 basis point increase, driven by continued growth of higher margin products as well as the benefits of portfolio optimization.

Our adjusted EBITDA margin was 23.2% in the fourth quarter, unchanged from the prior year. For the full year 2019, our adjusted EBITDA margin was 24.3%, a 110 basis points increase over 2018, driven by higher sales and improved gross margins. And for the full year 2020, our adjusted EBITDA margin should increase by approximately 100 basis points at the midpoint of our guidance.

Fourth quarter GAAP earnings per share were $0.18 compared to $0.29 in the fourth quarter of 2018. Adjusted earnings per share were $0.68 compared to $0.65 in the same quarter last year. And for the full year 2019, adjusted earnings per share increased double digits or 13.2% to $2.74. For the full year 2020, we expect GAAP earnings per share to more than double and be in the range of $1.40 to $1.45.

Adjusted earnings per share will be in a range of $3.00 to $3.05, which represents approximately 10% growth and assumes a weighted average diluted share count of about 85.5 million. For the first quarter, we expect adjusted earnings per share to increase approximately 5% over the prior year.

Turning to Slide 9, I'll walk through our cash flow performance. For the full year, operating cash flow was $230 million --$231 million, an increase of 16%, exceeding the top end of our guidance range. Free cash flow was $162 million. For 2020, we are projecting operating cash flow in the range of $240 million to $250 million and free cash flow conversion of over 70%. Capital expenditures are forecast to decline by approximately $10 million compared to 2019 as a result of lower capital investments associated with the Codman integration.

If you turn to slide 10, I'll provide you a brief update on our capital structure following our recent financing activities. As of December 31st 2019, we had cash and cash equivalents of approximately $200 million, net debt of about $1.2 billion and bank leverage ratio of 2.6 times. As part of our ongoing strategy to optimize our capital structure, we acted on favorable market conditions to improve the flexibility of our balance sheet earlier this month.

We renegotiated the terms of our $2.2 billion bank facility and extended the maturity of our credit agreement by two years to 2025. We also issued a $575 million convertible note and we will use approximately $100 million for the accelerated share repurchase program we launched earlier this month. Inclusive of these financing transactions, we estimate a pro forma year-end 2019 cash balance of $321 million, net debt of $1.3 billion, and a bank leverage ratio of about 3.0 times. Based on improving cash flows and consistent with our prior messaging, we remain comfortably operating with a bank leverage ratio in the range of 2.5 times to 3.5 times.

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

Peter Arduini -- President and Chief Executive Officer

Thanks Carrie. If you will turn to Slide 11; this slide really gives you a view of the heavy lifting that we've completed in 2018 and '19 to position us for success in 2020 and beyond. Over the last two years, we completed the largest and most complex integration in the Company's history.

This was accomplished with an immense amount of focus across our organization and minimal disruption. We've emerged from the integration as a clear global leader in neurosurgery. At the same time, we expanded and realigned our Orthopedics & Tissue Technologies segment to position the Company to become a market leader in regenerative technologies.

In 2019, we completed a multi-year ERP conversion and now have the entire Company on a single global system which increases our agility and improves productivity by leveraging technologies. We completed initiatives to optimize our manufacturing facilities, including three plant closures and invested in capacity and quality improvements and several others. And 2020 will be our peak year for portfolio optimization.

We also expanded our senior leadership team by bringing Carrie on board as CFO and having Glenn assume the newly created role of Chief Operating Officer. Our ability to increase focus on growth initiatives as opposed to integration activities will enable both top line and bottom line growth acceleration in 2020.

If you'll turn to Slide 12, I'll summarize our 2020 outlook and close out our prepared remarks. Our long-term financial goals are listed on the slide and remain intact. Our confidence in 2020 revenue acceleration is based on multiple growth drivers. In CSS we'll realize the full benefit from recently launched products, continued growth in higher margin products and expansion into faster growing international markets such as China and Japan.

In OTT, sales in our regenerative technologies franchises, including private label, will accelerate early in the year, boosted by the capacity investments we made in 2019. We also expect the pace of growth in our Orthopedics franchise to increase over the course of 2020.

Turning to profitability, the 2020 guidance that Carrie provided includes about a 150 basis points of gross margin expansion and 100 basis points of EBITDA margin expansion, driven by improving scale and efficiencies. Combined, these growth drivers give us confidence in achieving our top line and bottom-line guidance for this year.

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, sir. [Operator Instructions] Our first question will come from David Turkaly with JMP Securities.

David Turkaly -- JMP Securities -- Analyst

Thanks, good morning. Just on the portfolio optimization. I think -- I guess, I think you said $30 million in 2020. I think it was $29 million last year, maybe $39 million the year before that. And Pete, I think you made the comment that you may be at a point now where those slow or maybe even stop. I was just wondering if you could give us a comment on that. Do we still expect some of those divestitures and discontinued ops in '21 and beyond?

Peter Arduini -- President and Chief Executive Officer

Yes, Dave, I'll comment and I'll have Carrie make some points. I think the point in the prepared comments were for, obviously this component of the products that we talked about. This is really the peak year sales, and again, remind everyone products that we had to divest or products that we do divest or products that we actually determined that we will take them out of the portfolio to achieve our long-term strategy is what we're -- what we're talking about.

And to the point, we believe that 2020 is really the peak year. The spread between '19 and 20 is that $30 million. That's the difference that we'll have and we think that will go down in future years for sure. The point being though is that there's always some level of pruning. But post the Codman acquisition and taking a look at certain product lines that might have overlapped or we weren't going to invest in it any further, this happens to be a bigger component of the focus in portfolio optimization and it will be going forward.

Carrie, I don't know if you want to add any more details.

Carrie Anderson -- Corporate Vice President and Chief Financial Officer

Yeah, just to clarify, the year-over-year change is $30 million between -- a bridge between 2019 and 2020. That comparison in '18 to '19 was about $11 million. So it's going from a year-over-year change of $11 million to about $30 million. To Pete's point, it is the peak of that activity and it is a crucial piece of the value enhancing initiative. It's a driver of our gross margin story, for sure. So it is a part of our investment thesis and drives some of that gross margin that we expect to see in 2020.

David Turkaly -- JMP Securities -- Analyst

Great. And then as a quick follow-up, you talked about some of your longer-term targets. And I know one of them was to get to 45% regenerative mix by 2022. I was wondering if you could comment on where that stands today. And then, you mentioned the supply constraint, obviously some investments on the capacity side, but I guess any additional color on what you think that cost you in the quarter and then sort of -- I guess are those expenditures at the two facilities largely done now?

Peter Arduini -- President and Chief Executive Officer

Yeah. So, Dave, I'll maybe just comment on the regenerative mix then maybe Glenn, you could talk about some of the supply questions. Look, at this point in time, we're probably around 40% in that window of our total sales come from products, which regenerate within the body. We were probably a little bit higher a few years ago but the shift -- the addition of the Codman products move that down.

And just to remind everyone, again, when we think about nerve repair, we think about chronic wounds, we think about acute wounds, we think about hernia repair, we think about the plastic & reconstructive; all of those are derivatives of our core technology platforms, which are regenerative based. And so, we think those markets are going to continue to accelerate.

Obviously, 2019 was a slower growth year as we laid it out, heavily associated with the supply constraints that we had. But as we look forward both in acquisitions as well as organic. I mean, we remain very optimistic that the regenerative platform will continue to be a big growth driver going for us, not only in OTT but also within the CSS side with our DuraGen platform our DuraSeal platform and some other opportunities that we have in front of us.

Glenn, you may want to talk a little bit more about the supply piece.

Glenn G. Coleman -- Corporate Vice President and Chief Operating Officer

Yeah. Dave, as you mentioned, I would say that the two areas where we've been supply constrained have been in our Memphis facility in Boston. So Memphis makes the amniotic products for us. The two big efforts we have ongoing throughout 2019 were around increasing placenta recovery efforts and expanding our hospital network in third-party networks and that was a big deal in terms of getting more material into the actual facility.

I know we've also upgrade and expand the clean rooms in that site to significantly add capacity. And so, those investments are essentially behind us. We have some more plans late in 2020 to add a few more clean rooms, but we are in very good position on our supply as it relates to the amniotics and, in fact, we're building safety stock as we enter the first quarter of 2020. So you'll see an improvement in our results in OTT as relates to amniotics starting here early in 2020.

Boston, we've been supply constrained for a different reason. You probably remember, we went through an FDA audit. We've been doing quality remediation efforts throughout 2019. There are no patient safety issues here. We are continuing to ship out of that facility, but there were changes we had to make to the actual physical facility and those changes required us to actually shut down the plant, which is planned at the end of the third quarter and into the fourth quarter.

As we are going through plant shutdown, we extended that shut down for several weeks to add an additional production line, which is going to get us 50% more capacity as we enter 2020 and so now the plant is up and running, we have more capacity. We're going to be building supply, but those are the two plants that have really constrained ourselves in the OTT business throughout 2019. But starting here in 2020, you're going to see an improvement in both of those facilities, and you'll see that reflected in the OTT, better performance starting here in Q1.

David Turkaly -- JMP Securities -- Analyst

Thank you.

Peter Arduini -- President and Chief Executive Officer

Thanks.

Operator

Thank you. Our next question will come from Ryan Zimmerman with BTIG.

Ryan Zimmerman -- BTIG -- Analyst

Great, thank you.

Peter Arduini -- President and Chief Executive Officer

Hey Ryan.

Ryan Zimmerman -- BTIG -- Analyst

So, I want to first start on CNS, hey, guys -- CSS. So you're guiding to 4% to midpoint. I think if I recall, you initiate Codman at about 3.5% to 4% last year and then raised it through the year ending around 5.6% as you said, and there was 5% guidance at the start of the third quarter -- excuse me, at the third quarter call. So first, why a wider range here? And then, is this conservatism, in your view, for the CSS business? I hear what you're saying, Pete, in terms of the business getting better or is there something structurally that slowing it down at -- in '20 that we need to consider?

Carrie Anderson -- Corporate Vice President and Chief Financial Officer

So, I'll take that. This is Carrie. We finished 2019 at 5.6% organic growth, as you mentioned. So definitely a strong year for us and the result was particularly strong for our international team that just had an incredible year. We've always talked about our CSS long-term growth range as between 3% to 5% and we expect to be in this range for 2020.

I would say that certainly neuro, the neurosurgical area is a competitive area for us. We didn't see some of the competition we thought we would have seen in 2019 with a couple of our key products. So our guidance of 3% to 5% does reflect more of a competitive landscape for us there. And frankly, we're coming off of tough comps. It was a particularly strong year for us, so the 3% to 5%, I think on balance, is in our guidance range, our long-term guidance range and that's where we'd expect.

Now longer term, we have the opportunity to move more consistently to the top end of this guidance range with the contribution of our new acquisitions, Rebound and Arkis, but those are not revenue contributors in 2020. And so it will take us a few years for really to see the impact of those two acquisitions. But for 2020, we expect to be in that 3% to 5% range.

Peter Arduini -- President and Chief Executive Officer

Yeah. And Ryan, so to Carrie's point, there is no real -- any underlying change or structural change. But again, just think about our CUSA franchise, we're in year three heading toward that year four window, which is kind of, has our peak. We have a competitor in the space.

We actually have outperformed in the second half of 2019. And so we're expecting solid performance. But to Carrie's point, on a much higher base. But I think fundamentally, there's been no change or outlook on really any of our segments, with CSS and we expect to have a very solid year this year.

Ryan Zimmerman -- BTIG -- Analyst

Got it. Okay, that's helpful. And then, as a follow-up to that, you did raise a lot of money through a recent convertible offering and so I'd just love to understand, I mean, partly the ASR is going to be in place and that will account for about $100 million instead. But with the other portion of that available, can you talk about your M&A strategy, kind of what you see out there, what the appetite -- what your appetite is for M&A. You did make some comments, I think in the presentation around you're assuming essentially minimal acquisition revenue this year in 2020 in the guidance, but certainly, you have the bandwidth now to do some. So love to just get your thoughts there. Thank you, guys.

Peter Arduini -- President and Chief Executive Officer

Yeah, thanks, Ryan. So obviously, with the addition of Carrie and Glenn, it does give myself more time to focus on other parts of our strategy to make sure that we can reach a lot of the goals we've laid out for 2022. And as you are well aware, I mean we have been a Company that's between organic as well as inorganic activity, we build out our base. I've been focused on our capital allocation strategy as well, first with some of the share buyback to leverage the most value.

But as our longer-term component here is looking at the right tuck-in acquisitions. As we've stated before, I mean, in the case of Codman, it was kind of a special situation where the number two player buys the number three and becomes the number one player in the marketplace. We don't necessarily see many of those coming upon us, but we have lots of opportunities for tuck-in acquisitions that would be accretive and add to our long-term strategy, particularly in TT, potentially within Orthopedics and if you think about CSS as a specialty surgical component that brings expertise and sealing tissues as well as cutting removal, we've got lots of opportunities out there.

And so, now with integration behind us, I think expect to see us back and active again, but staying very disciplined to the return metrics that would make sense as well as to our focus on what we want to be and what we don't want to be. I don't think you're going to see us stray significantly off of our strategy.

Carrie Anderson -- Corporate Vice President and Chief Financial Officer

And I would just add there, in terms of the convert timing, it was really market conditions just being very favorable. We've been -- we're in a period of really prolonged global -- a global bull market and we're always looking for opportune times to strengthen our balance sheet and we frankly saw an opportunity to get really low cost financing ahead of what could be a more volatile year. And it was a great structure, we don't get dilutive until the stock moves above $113 and it gives us some dry powder to continue to pursue, as Pete mentioned, our long-term growth strategy.

Ryan Zimmerman -- BTIG -- Analyst

Fair enough. Thanks for the feedback guys.

Peter Arduini -- President and Chief Executive Officer

Thanks Ryan.

Operator

Thank you. Our next question comes from Robbie Marcus with JP Morgan.

Robbie Marcus -- JP Morgan -- Analyst

Thanks for taking my questions. Two for me, maybe first, if I go back to the JP Morgan Conference, you talked about share repurchase not being necessary to hit double-digit EPS growth. The guidance range you put out today has 9% to 11%, which does include the ASR and a measure of share repurchase. So what's the delta between the two and do you still think that you can hit double-digit EPS growth, even if we didn't include the benefit of share repurchase?

Carrie Anderson -- Corporate Vice President and Chief Financial Officer

So yeah, I'll take that question. Certainly the share repurchase gives us confidence in our outlook. It's a way to return value to our shareholders. But the way I also characterize it, is it gives us flexibility and optionality in our planning for key investments to balance the year. Our guidance does reflect the benefit of the $100 million share buyback, but it also incorporates a 100 basis points of EBITDA margin expansion as well.

And we can get to double-digits without the share repurchase. But what it does, again, it gives us degrees of freedom on how we make decisions on key investments. And last year, we made the two acquisitions, Arkis and Rebound. It does expand our addressable market by over $1 billion and we expect these product lines will help push us consistently to the high end of that growth for CSS.

But in the short term, they're not revenue contributors and they're still going to require R&D investments. So the buyback gives us the flexibility to make the right investment decisions here. And frankly, it's still early in the year. Our hope is that we could actually improve on this outlook as the year unfolds, but given the early start to the year, we're taking a more cautious guidance approach.

Robbie Marcus -- JP Morgan -- Analyst

Okay, understood. And maybe second, more a philosophical question. When I look at all of your med-tech peers or almost the entirety of med-tech peers, no one else backs out discontinued products. Especially, if we look at Codman that was closed in fourth quarter 2017, are you're still backing out discontinued products in 2020 from it.

So as we think about just how you think about organic growth in the business ex that, by my math, you're closer to 3% to 3.5% organic when I do apples to apples to your peers. How do you think about the long-term organic growth rate that the med-tech industry puts up at around 5%? And do you think you can exceed it without backing out discontinued products. Thanks.

Peter Arduini -- President and Chief Executive Officer

So, the first part is the growth rate, Robbie. Without a shadow of a doubt we believe that we can be a 5% to 7% grower without significant divestitures or discontinued products. But again, everybody backs out when you actually sell off a product, right? When you actually divest it.

We're very serious about what we told our long-term holders back in '17 that we would drive to be 70% gross margins and 28% to 30% EBITDA, holding on to products that would create a significant amount lumpiness in a year and make it challenging to kind of understand how the operating model is working.

We didn't think it was the right way to do it. We take it out. We report them very clearly. You can see what the reported number is. You can see the organic. If you wanted to add some of that back in to factor it, obviously you can do that. But we think it's the right thing to do, is to move out of those and obviously keep investors informed about what that curve looks like which, you know our point is, for this year, this is kind of the peak of it and then we move beyond it.

But I still stand by it. I think it's the right thing to do. And again the reason being is that this is the way we actually represent what the true ability of the company is in our profitability.

Carrie Anderson -- Corporate Vice President and Chief Financial Officer

And these really are strategic exits, they're not just the wind down as products. We are making very strategic decisions on the portfolio of what we're in and what we're not in. If we could have found a buyer for these assets, we would have and treat it like divested. But we -- in some cases, these are commodity products. You can find a natural buyer. But it doesn't change our decision that we need to exit these.

When you do discontinue a product, it takes time. It doesn't get out of your revenue for a while because in lot of cases you have long-term customer commitments that you have to honor there. So it takes some time. The peak of that activity is in this year, in 2020. There will be a tail of that into 2021. But beyond that, I don't think I wouldn't see -- we'll be through that activity.

Peter Arduini -- President and Chief Executive Officer

And the only other last past I'd add, Robbie, you know this well. I mean, our portfolio is one, either on the OTT side or on the CSS side that has a component that fundamentally is all the product lines that we're in, we remain to be a rather -- a business that actually isn't affected significantly on how economic turns play out.

And getting the portfolio in a position for when the markets aren't doing as well, is a really important part of, I would say, the cadence and focus that we put in place. Neurosurgery, as an example, between traumatic brain injury or tumor resection, doesn't change a whole lot in a bull market or a bear market as well as chronic or acute wounds and such.

And so, other parts of our portfolio that, again, some of these older dental assets, as an example, some product lines that literally we don't see a future because technology has moved on. The strategic divestiture route we just felt was the right thing to do and be -- to this discussion here, be very transparent about what we're doing and why we're doing.

Robbie Marcus -- JP Morgan -- Analyst

Appreciate the thoughts. Thank you.

Peter Arduini -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Raj Denhoy with Jefferies.

Anthony Petrone -- Jefferies -- Analyst

Hey, this is Anthony for Raj. I have two on the revenue side, and then one on the margin side. Just obviously this growth in China, double-digit growth, maybe just any comments on coronavirus, certainly from the calls through earnings season so far. Most recently, Medtronic, they're commenting on slower procedure volume. So just wondering how that plays out.

The second revenue question would be on DuraGen in Japan, it's out there for now the third quarter. I'm just wondering how penetrated DuraGen is in Japan and what the expectation is as we head into the back end of the year?

The last question on margins would just be, can you help us walk through the bridge at the EBITDA line just from 23% exiting 4Q to the 30% target. So there is significant room in front of the Company. I'm just wondering what the key drivers are there? Is it CSS upside? Is it new products? Is it mix? Just some detail there would be great. Thanks.

Glenn G. Coleman -- Corporate Vice President and Chief Operating Officer

So Anthony, this is Glenn. I'll take the first two and Carrie can answer the margin question. On China, we had another strong fourth quarter, double-digit growth. I'll frame the business out so you have a better understanding about the size of the business and what we do in China. First and foremost, our top priority at the moment is ensuring the safety of our 120 employees in China. To- date none have contracted the virus nor have their immediate family members. So that is obviously top of mind and top priority for us.

Our commercial business in China today is about $50 million or 3% of our consolidated sales. Keep in mind, almost everything in China is neurosurgery related and that's important because most of the procedures are not elective and so we're hearing the same thing in terms of a slowdown in hospital procedures.

We think it's probably less of an impact on us, because our procedures are non-elective. But clearly that's something that we're seeing on the ground in terms of slowing procedures, both here in the first quarter and second quarter, but we don't think it's going to have a big impact on our business given what I just mentioned.

We also have a small manufacturing site in Nantong, which is about a 100 miles from Shanghai. It supports less than $25 million of our traditional wound care business. The good news around that is, we shipped a bunch of products prior to the Chinese New Year to support our first quarter forecast and to-date, we've been able to get that facility up and running and we're back to normal operations. So we don't expect much of a disruption from our small plant in Nantong.

And then third, when you look at suppliers, we do source from China a small portion of our products. We've been in contact with our suppliers on the ground. They are up and running for all of our key products at the moment. And as long as it doesn't turn into a long period of time with this coronavirus, we feel like we've got the situation under control and we're not overly concerned around the supply chain.

Carrie Anderson -- Corporate Vice President and Chief Financial Officer

I would add on that before you go to -- on the DuraGen is that our Q1 revenue guidance does factor in some conservatism around China but nothing of a significant nature as of right now. If something changes that's more significant, we wouldn't have that comprehended. And beyond Q1, it's a bit more unknown. So there is nothing specifically factored in for anything beyond Q1.

Glenn G. Coleman -- Corporate Vice President and Chief Operating Officer

Yeah. But all in all, I think we've got the situation well under control. And again, most of our procedures are not elective. As it relates to DuraGen in Japan, could not be more pleased with the start of the launch of that product really into our third quarter now of the launch, already seeing a very good momentum. And this is a product, in my mind, in 18 to 24 months from now should be north of $10 million in annual sales.

So seeing a good ramp, exciting product. We have other really nice initiatives going on in Japan as well in terms of moving some of the remaining indirect business to a direct channel and creating a general surgical team and I think that's also going to give us better growth in Japan in addition to the new product introduction that we just mentioned on DuraGen.

Carrie Anderson -- Corporate Vice President and Chief Financial Officer

And then, on your question on the EBITDA margin expansion, the 100 bps there, it's really a factor of improving gross margin, so that's where that lift is really coming from and it's driven by that favorable product mix. It's the combination of faster growth and higher margin products, which certainly the new product introductions are a big component of that. And it's also this portfolio optimization piece. It's a critical piece of that gross margin story, is getting out of discontinuing and divesting products that are lower growth, lower margin type of products. So it's the combination of both of those that are really driving that EBITDA margin expansion coming through the gross margin line.

Peter Arduini -- President and Chief Executive Officer

Yeah, to Carrie's point, when you think about that over the next few years, it's more of the same. So the 500 basis points improvement over that time period is, it's that whole play of taking lower margin products out of the portfolio, all of our new product introductions have come in, that replace products have come in at equal or higher gross margins around the world, which is the benefit, and then our structural size now we're at this point.

And with the common ERP system that we can actually grow our sales pretty significantly without the same ratio of employee additions that we've had to have in our past, when we had many other platform. So we're at a kind of critical window here over the next two, three years that help drive it.

Anthony Petrone -- Jefferies -- Analyst

That's helpful. And then just as a quick follow-up, just on DuraGen. Is it -- just to be clear, in Japan, just in terms of sizing of the matrices cleared, I mean do you have -- is the entire portfolio available there now or are you still have other sizes that you'll bring in?

Peter Arduini -- President and Chief Executive Officer

On DuraGen, we've got the full portfolio.

Glenn G. Coleman -- Corporate Vice President and Chief Operating Officer

Yeah, we've the full portfolio of sizes for DuraGen in Japan.

Anthony Petrone -- Jefferies -- Analyst

Okay, thanks.

Peter Arduini -- President and Chief Executive Officer

We're lock, loaded, ready to go. It's up and running and we're the only Xenograft that's actually out there on the marketplace. And as you guys know, as Glenn commented, we've got the really deep set of clinical data from around the world, which is helping the Japanese team bring it into an industrialized market converted. So I think we've got multiple years in front of us of growth here in Japan.

Anthony Petrone -- Jefferies -- Analyst

Okay, thanks.

Peter Arduini -- President and Chief Executive Officer

Next question.

Operator

Thank you. Our next question comes from Steven Lichtman with Oppenheimer & Company.

Steven Lichtman -- Oppenheimer & Company -- Analyst

Thank you. Hi, guys. So as you look to the 2020 guidance, it looks like you're balancing you know dropping through some of the gross margin strength you're seeing and reinvesting. As we think about reinvestments, should we be thinking about that more on the R&D line or are you taking the opportunity to expand the sales force, is it both? Any color there would be great.

Glenn G. Coleman -- Corporate Vice President and Chief Operating Officer

Yeah Steve, it's Glenn. I think a couple of things. R&D is obviously a big component, with the Rebound and Arkis acquisitions. So you're going to definitely see an uptick in the R&D spend. Relative to the commercial channels, we are adding more resources and investment. I would highlight we're adding more nerve specialists, we're adding more associate sales reps in our wound reconstruction business.

And then outside the U.S., we're going to be adding more people in Japan to support the indirect to direct channel move I mentioned earlier. So creating a general surgical team and also more neurosurgical specialists in Japan as well, given the strong momentum we have. So it's a combination of both. So R&D as well as expanding our commercial channels.

Carrie Anderson -- Corporate Vice President and Chief Financial Officer

And I would say, Steve, on a percent of sales basis, you will see an increase of R&D year-over-year. I think we ended the year 2019 and about 5.1%. You're going to have that move up to somewhere between 5.5% and 6%, somewhere in that -- in that midpoint there. And it's the -- it's the work that Glenn mentioned, it's the Arkis and Rebound being additive to the portfolio some R&D spend there. Clinical study work there that will be focusing on well -- as well. That will be the primary driver.

And that was a -- it's a very conscious decision. So, again, as we think about the choices that we want to make in 2020, R&D is one of those choices that we want to invest in.

Peter Arduini -- President and Chief Executive Officer

And to both Carrie and Glenn's point, I think the exciting part for us is we've got a really well laid out plan for R&D pipeline in new products. This is a really pivotal year for us, for certain clinical studies too and based on feedback that we receive from the agency domestically and globally and pending on how some of that news plays out, for the most part, it's structured in our plans to be that we would view it as positive news depending on how some of these feedbacks come back. We have different opportunities throughout the OTT portfolio as well as with CSS.

And from a funding standpoint, it's one of the main reasons that we've kind of basically said, let's see how the year plays out. We want to make sure that we have adequate ability to fund those if we receive more positive news. And I'm referring to studies that show proof on why our products performed better than others, indications that may allow us to open up markets that we have not significantly penetrated at this point.

And so there's been a lot of great work in that area. And again, I'd say in future calls, we'll talk more about the portfolio and how that mix of R&D investment will play out or not. But I think with we've laid out our guidance for this year, we feel very good based on what -- however those play out, that we'll have adequate capabilities to address those.

Steven Lichtman -- Oppenheimer & Company -- Analyst

Great, thanks guys. I mean, just secondly, on the longer-term pipeline, can you talk a little bit about the milestones ahead on rebound and on the shoulder products that you're working on. And maybe just a quick update on your thoughts on the opportunity for a rebound, long-term?

Peter Arduini -- President and Chief Executive Officer

Yeah, I would just say, at a high level for the -- our platform allows us to go into intracerebral hemorrhage as well as minimally invasive neurosurgery. They're two different fundamental timelines. I think we'll be able to start doing some fundamental research work with the final products here later this year and to next year.

But as far as indications for ICH or something like that, we're talking out a few years. And so, we'd actually have the clinical studies and the research work done. But quite excited about where that may take us and obviously our entree into the stroke market from a neurosurgery standpoint, we think is a quite an interesting opportunity for us.

The other aspect of it though, minimally invasive, which takes a -- this type of a product and enables us to adapt our instrumentation to work in a smaller channel that has high illumination as well as video capabilities, we think is quite interesting. And actually might be able to address certain disease states in a closer window time, say 24 months. But those are all proceeding well. The team is fitting in very well with our team. I think the Group has, at this point, has obviously achieve their milestones. We have some more challenging ones in front of us, but as far as indications and having the product ready, we're well aligned to do that.

The other one is on the anti-thrombus technology. Part of that is science work relative to its integration into different types of catheter types, whether it'd be silicone or polypropylene and such and good advancements there, we have a first generation product that's out in the market today. And before the end of the year, we'll have a really well thought out insights on to other materials and that will obviously determine how big the market opportunity is for us, but all is on track.

Glenn G. Coleman -- Corporate Vice President and Chief Operating Officer

And Steve, I would just add, relative to shoulder, since you brought it up. Today, we think we've got a very strong shoulder portfolio, both the total and our Reverse Shoulder. The instrumentation is differentiated versus others that are on the market, very simplified instrumentation set and we are working toward getting a short stem and a stemless shoulder in place here you know over the next 18 to 24 months. And then, down the road, longer-term, a PYROHEMI shoulder. So we have a very nice R&D pipeline for shoulder and a pathway for success in what's a very big shoulder market today.

Steven Lichtman -- Oppenheimer & Company -- Analyst

Great, thanks guys.

Operator

Thank you. Our next question comes from Matt Miksic with Credit Suisse.

Matt Miksic -- Credit Suisse -- Analyst

Hi, thanks for taking the questions. So I had -- I had one if I could, just to kind of go back a bit and then one sort of looking forward. So the first question, just to maybe revisit some of the things, Pete, that you've talked a little bit about in terms of the supply issues in Ortho that affected Q4 versus expectations. If you could maybe just talk a little bit about, having seen these kinds of things before, you know increases in capacity, work plans, regulatory remediation and so on.

Sometimes those things can get handled a little bit more smoothly with safety stocks or some planning that had less of an end market disruption to your numbers and sometimes they can't. And so, maybe if you could talk a little bit about how -- why it was that that impacted and maybe what you can do to reduce that in the future?

And then just on -- also in this kind of, I know there's been a lot of talk about it already, but this discontinued products. Just maybe historically and maybe from a rationale perspective, we're in the business lines do these things land most often. Is it in the crossover between Codman and legacy Integra or is it -- which business lines or which geographies? I know that's a kind of a long question about this past quarter. But I did have one follow-up, just looking forward if I could.

Glenn G. Coleman -- Corporate Vice President and Chief Operating Officer

Hey Matt, it's Glenn. Let me start off with the supply situation and what happened in the fourth quarter. Why there was a delta versus our forecast. It was really our Boston facility. So as we were going through the plant shutdown and physically, making the changes to the facility from a quality perspective, we made an intentional decision to extend the shutdown to add another production line so that once we got up and running, it would actually result in 50% more capacity generated out of that facility. And one of the reasons why we're seeing a bit of a backlog today is, these are some of the fastest growing products we have in our portfolio.

So our plastic & reconstructive and wound care products have very good growth profiles right now and we did everything we possibly could to build as much safety stock prior to the shutdown as possible to minimize the impact in the fourth quarter. But nevertheless, there was an impact. The good news is, as we start off here in 2020, we now have more capacity. We're on a better path forward in terms of supply out of Boston. And we expect to have the remediation efforts complete in the short-term and then get the warning letter lifted in 2020.

So that's the situation and why we had a bit of a miss on the OTT side in the fourth quarter. In general though, our supply is going to be much better across the board, starting in the first quarter of 2020. I think Carrie made some prepared remarks around that. But we still have a few more months in Boston to get to safety stock levels. But all in all, I'm quite confident, we're not going to be talking about supply as we move through 2020.

Carrie, maybe you want to comment on discontinued products?

Carrie Anderson -- Corporate Vice President and Chief Financial Officer

Yeah, I would say, certainly if you go back to the prepared remarks that the bulk of the impact is in the CSS segment, very little right now on the OTT. So it's really concentrated in the CSS side and it's predominantly in the precision tool and instruments portfolio. So it's really, I mean we talked about dental instruments. Last year we got out of that and closed three facilities down. It's your brain mapping and stereotaxy. It's really concentrated on the PT&I type of the -- of our portfolio there.

Matt Miksic -- Credit Suisse -- Analyst

That's helpful [Speech Overlap] Go ahead.

Glenn G. Coleman -- Corporate Vice President and Chief Operating Officer

Yeah, so Matt -- I mean just call it -- I mean things like dental mirrors or file that aren't strategic for us that we look to sell, we didn't really find the right buyer for it. Was too much work to do it, roughly $10 million or so of revenue, low margin, no growth. It doesn't make sense to waste the energy on it. Consuming a higher percentage of base costs as well. And so we are able to take the stranded cost out as well by addressing those.

And to Carrie's point, other things, you know that their time has passed, those things such as stereotaxy and brain mapping that have been bypassed by halo-less types of procedures or other advanced planning situations and tools and so completely eliminating those and not backfilling those. We're not going into that area. Those are the key decisions we made. And again, as opposed to having them languish in the portfolio, be decisive, get them out, and have a cleaner organization going forward. That gives us great confidence we can hit our profitability goals. That's the driver of it.

Matt Miksic -- Credit Suisse -- Analyst

Got it. And so those might have been things going way back, it might have been reported, like in handheld instruments or things that folks might have been asking some time ago as to why you were in these -- this sort of business lines. And in the first place [Speech Overlap] maybe people are selective about that. So...

Peter Arduini -- President and Chief Executive Officer

Yeah. I mean it's part of our focusing strategy and margin growth.

Matt Miksic -- Credit Suisse -- Analyst

Okay. So then, looking forward, I guess -- part of this is a comment I guess on some of the feedback I get from investors and part of it is a question around sort of cadence in guidance and how to think about the year ahead is, I guess one common question that I get or it seems like a -- not so much a concern, but a challenge that investors have when they come to Integra is, is sort of looking at, you have a lot of great products, there is a lot of innovation and product launches happening. Obviously Codman was a big, big [Indecipherable] and it has all kinds of downstream benefits, but there is no -- there is no one thing that if we can focus on, we can get excited about CUSA or get excited about the shoulder, get excited about Japan or the wound care business.

But none of those is important as they are, are really the key big variable that's going to drive the equation, which kind of -- which really leaves us to sort of this composite growth in your two major businesses and which is great and impressive to kind of break into this mid-single digits and driving double-digit earnings growth.

But confidence in that reacceleration on the OTT side of the business, I guess, especially given some of the lumpiness in private label is something that I wanted to just make sure that we understand how to think about sort of the beginning of the year and where in that model is there some opportunity for variability and what has to happen to kind of reaccelerate to that -- you know to your guided range of 6% to 8% for that line of business?

Peter Arduini -- President and Chief Executive Officer

So Matt, I think there is two big questions in there. One about the diversification and why that versus being able to follow one or two big product families. And the other one is our confidence on the rebound in our OTT. So I think, look, on the first part. We think the diversification, as long as it's focused into areas where you can be a top three player is a great thing.

So everything from a reimbursement structure where we don't have one device, it's the most expensive thing in the procedure. In a neuro procedure there might be 15 Integra items that are used throughout that procedure that work together, connected together that give us a sticky connection. Unlike a lot of other folks. The same thing is true within the regenerative side, we're building it out. For those franchises where we were diversified, but we're a top -- we were number five, six or seven or in the case of dental maybe we were at number 10. We're getting out of, that's part of the strategy.

So we think that diversification can mean a lot if it's concentrated on areas where you are a top player, not there yet, but that's where we're moving toward. On the supply -- on the growth back in TT. When you look at the underlying markets in chronic acute wound, burn, nerve, breast, hernia, all of those markets have the potential to be everywhere from mid-single-digit to high double-digit growth.

We completely stunted our growth in '19 with supply and I feel very confident now with supply back we'll be able to get back to our growth rates that we had expected. And now with Glenn as COO, his sole focus has been really in the second half of the year on supply and I think with him and the operations team, they've done a really nice job getting us back in a position to be successful. Not just compete but successful and be able to grow here in 2020, starting in Q1.

Matt Miksic -- Credit Suisse -- Analyst

Well, thanks for the color. That's helpful.

Peter Arduini -- President and Chief Executive Officer

Thanks.

Operator

Thank you. Our next question comes from Matt O'Brien with Piper Sandler.

Andrew Stafford -- Piper Sandler -- Analyst

Hi everyone. Good morning. This is drew on for Matt. Thank you for taking the questions. I just kind of wanted to go back to extremities since it improved a little bit this quarter, you called out shoulder and ankle as pockets of strength in the quarter. I guess just given some consolidation we've seen in the space, just wanted to get your updated thoughts on whether you've been benefiting from any disruption there.

Glenn G. Coleman -- Corporate Vice President and Chief Operating Officer

Hey Drew, It's Glenn, I'll take this one. Overall, I would say we were very pleased with the performance of our Orthopedics business in 2019. We stabilized the business. We actually got some growth for the first time in four years. And in the U.S., we actually saw kind of mid-single-digit growth throughout the year, driven largely by our arthroplasty product lines in ankle and shoulder.

As we look forward, I would say, we haven't seen any disruption benefit yet, but obviously that could be something that happens later this year, depending upon how things play out. But I don't think we've seen any benefit yet relative to disruption on some of the consolidation, taking place in this space.

But as we look forward, we are expecting to see an improvement in our Orthopedics business from what you saw in 2019 and we're quite excited about both our ankle and shoulder portfolio.

Peter Arduini -- President and Chief Executive Officer

I think it's fair to say, Glenn. I think Pete Ligotti and our commercial team have just done a great job for us, particularly in the United States. And if you recall, we had a lot of channel changes, almost changed every territory back in '18 into '19. Now, you're starting to see the benefit of a strong leadership team and a stable crew in '19 and we expect that improve in 2020.

And if there is a little bit of disruption by some other folks, we'll be hanging around the hook to take advantage of whatever may come our way. But we feel pretty good about the position we're at.

Andrew Stafford -- Piper Sandler -- Analyst

Okay, very helpful. Thank you. And then just a real quick modeling question, can you quantify any selling day benefit you include in your Q1 organic guidance, if there is anything?

Carrie Anderson -- Corporate Vice President and Chief Financial Officer

No. I mean I would say that our guidance is inclusive of the days in the quarter. So about 4% is our organic growth for Q1.

Andrew Stafford -- Piper Sandler -- Analyst

Okay, thank you.

Peter Arduini -- President and Chief Executive Officer

Thanks for your questions.

Operator

Thank you. Our next question comes from Travis Steed with Bank of America.

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

Hey, good morning. Thanks for taking the questions. It sounds like you're dialing in about a $100 million of the $225 million buyback in the earnings guidance for this year. Is the way to think about it that other $125 million is really, you're saving for dry powder in case you do other acquisitions that are diluted over the year? And then if you do, do a couple of other dilutive acquisitions, then you can still get to the double-digit EPS growth?

Carrie Anderson -- Corporate Vice President and Chief Financial Officer

Yeah, I would say we've committed to the $100 million. You are correct that there is additional capacity left on the Board approval, we have a $125 million additional capacity there. Our commitment is the $100 million and obviously we've launched an ASR to execute that. I would say that, well it's early in the year and we'll continue to assess our capital allocation and capital strategy here and we'll make the right decisions as the year unfolds. But we locked in the convert attractive financing. Got the ASR going. So feel good about how we started the year.

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

Okay, that's helpful. And then on the 5% revenue growth for this year. It's -- last year I think you said new products added about one point to growth. Is that how it ended up turning out and just curious how much new products are going to add in 2020 in terms of the 5%?

Carrie Anderson -- Corporate Vice President and Chief Financial Officer

I think it's about fair, yeah.

Peter Arduini -- President and Chief Executive Officer

You're taking about [Speech Overlap] Travis, are you taking about 1.5 of new product introduction in each and every year.

Carrie Anderson -- Corporate Vice President and Chief Financial Officer

Yeah 1.5 point.

Peter Arduini -- President and Chief Executive Officer

Yeah, given some of the comments we made around DuraGen Japan, that's going to be a nice contributor to organic growth from a new product introduction in 2020 and then some of these other products, we're going to get a full year benefit and then neuro portfolio will get us the rest of the way there as well. So just think of it as a 1.5 in 2020 and pretty much each and every year. That's our goal.

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

Okay. And then last quick one. Given the changes in the balance sheet, just curious if you could help what you're planning on interest and other and tax rate for 2020?

Carrie Anderson -- Corporate Vice President and Chief Financial Officer

Yeah. So just on those modeling questions. I would say net interest expense will benefit from obviously lower debt levels and a better financing cost. So I would say it amounted about a $5 million lower net interest expense. Other income, it's not a big mover for us. I would say about $5 million income there for your models and tax guidance. We finished 2019 at about 18.3% tax rate for the year. It will move up for 2020. I'd modeled somewhere around 19% and that's really driven by lower expected tax benefits from lower stock comp expense.

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

Okay, great. Thanks for taking the questions.

Peter Arduini -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Matt Taylor with UBS.

Matthew Taylor -- UBS -- Analyst

Hi, thank you for taking the question. I just had one clarification question first. So on the organic growth guidance for Q1, do you have an extra selling days so the 4% is actually less. I wasn't clear on the prior answer?

Carrie Anderson -- Corporate Vice President and Chief Financial Officer

It's all in there. It's 4% for the quarter. Seasonally, our first quarter is the lowest quarter of the year. It is better than last year, last year we were about 3% organic growth. This year, we're expecting about 4% organic growth. And as I mentioned before, we are factoring in some caution, some conservatism around China in that number as well.

Matthew Taylor -- UBS -- Analyst

Okay. And then, just on the gross margin guidance, could you parse out for us how much of the benefit is due to the divested products versus the new ones and other thing?

Carrie Anderson -- Corporate Vice President and Chief Financial Officer

We haven't provided that. But again, it's going to be a good mix between the two. It's really driven in combination of both of those factors on the mix side.

Matthew Taylor -- UBS -- Analyst

Okay and the last follow-up. On the 3% to 5% for CSS, you mentioned there is some conservatism in there for competition. Could you talk about how much conservatism there is in the guide?

Carrie Anderson -- Corporate Vice President and Chief Financial Officer

Again, I'd characterize our long-term guidance range for CSS to be 3% to 5% and basically we're saying we expect 2020 to be in that guidance range of 3% to 5%. So we would expect a normal amount of competition in 3% to 5%, is consistent with our long-term guidance range.

Matthew Taylor -- UBS -- Analyst

Okay, thank you very much.

Carrie Anderson -- Corporate Vice President and Chief Financial Officer

Thank you.

Operator

[Operator Closing Remarks]

Duration: 67 minutes

Call participants:

Michael Beaulieu -- Director, Investor Relations

Peter Arduini -- President and Chief Executive Officer

Carrie Anderson -- Corporate Vice President and Chief Financial Officer

Glenn G. Coleman -- Corporate Vice President and Chief Operating Officer

David Turkaly -- JMP Securities -- Analyst

Ryan Zimmerman -- BTIG -- Analyst

Robbie Marcus -- JP Morgan -- Analyst

Anthony Petrone -- Jefferies -- Analyst

Steven Lichtman -- Oppenheimer & Company -- Analyst

Matt Miksic -- Credit Suisse -- Analyst

Andrew Stafford -- Piper Sandler -- Analyst

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

Matthew Taylor -- UBS -- Analyst

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