Good day, everyone, and welcome to the Integra LifeSciences First Quarter Financial Reporting Conference Call. As a reminder, today's call is being recorded. At this time, I'll turn the conference call over to Ms. Angela Steinway, Head of Investor Relations. Please go ahead, Ma'am.

Good morning, and thank you for joining us for Integra LifeSciences' First Quarter 2012 Earnings Results Conference Call. Joining me today are Peter Arduini, President and Chief Executive Officer; and Jack Henneman, Chief Financial Officer. Yesterday afternoon, we issued a press release announcing our financial results for the first quarter. As you have probably seen in our press release, we are now presenting our revenue in 5 segments. These segments are: International, U.S. Neurosurgery; U.S. Instruments; U.S. Extremities; and U.S. Spine and Other, which includes Spine Hardware, OrthoBiologics and Private Label. We provide historical revenue information for these segments in the quarterly financial summary available on the Investor Relations page of our website. While we will also continue to provide revenue in the 3 product categories, our commentary and guidance will follow these 5 segments. We believe the results of this change in reporting and guidance will be useful to investors. Certain statements made during this call are forward-looking and actual results might differ materially from those projected in any forward-looking statement. Additional information concerning factors that could cause actual results to differ is contained in our periodic reports filed with the SEC. The forward-looking statements are made only as of the date hereof, and the company undertakes no obligation to update or revise the forward-looking statements. Certain non-GAAP financial measures are disclosed in this presentation. A reconciliation of these non-GAAP financial measures is available on the Investor section of our website at integralife.com. As we aim to keep our prepared remarks short, we will reference the financial results in the press release and will not restate the individual numbers. As a result, you may want to keep a copy of the release handy during the call. I will now turn the call over to Peter.

Thank you, Angela. We are pleased with the progress that we have made, particularly with our commercial and operations team. As a result, we came in at the top end our guidance range we provided to you in late February. Our strongest growth continues to come from Orthopedics, particularly in the United States. Our U.S. Extremities grew 25% in the period, helped by the addition of Ascension revenues. Production of our regenerative medicine products met its targets during March, and we started to clear backorders during the quarter. As a result, sales of our regenerative products grew in the mid-teens. During the quarter, our direct sales force began selling the full line of products from Ascension's portfolio. The integration of the product lines is complete. Sales of our legacy foot and ankle products also increased during the quarter. U.S. Spine and Other, which includes our Spine Hardware, OrthoBiologics and Private Label products, increased approximately 20%, primarily from the addition of the SeaSpine revenue and strong growth in OrthoBiologics. While the cross-pollination of the 2 Spine Hardware lines is progressing well, the Spine Hardware market remains challenging both in price and volume. Our Evo3 and Mozaik products continued to see high demand through both our existing base and newly added distributors. This demand drove another quarter of double-digit growth for OrthoBiologics. Private Label decreased versus the prior period. U.S. Neurosurgery revenue increased about 5% over the first quarter in 2011. Continued demand for our market-leading Duraplasty products, as well as strength in our Critical Care and Stereotactic product lines drove most of the increase. U.S. Instrument's revenue increased 1% versus prior year. Increasing sales in the acute care setting and high interest in our new LED surgical Headlight drove the growth. In the alternate side channel, sales declined slightly, and user…

Thank you, Pete. As we cautioned on our guidance call in February, much of our Q1 performance relied upon our ability to execute successfully in the last month of the quarter, which we did. As a result, the sales have brought us to the high end of our revenue guidance. Particularly, sales of our regenerative products were incremental relative to our expense base and therefore highly profitable. We also did a good job controlling expenses in the quarter and executed well on the supply chain. When you look at our EPS guidance, our first quarter performance has increased our confidence in our adjusted earnings per share guidance for the year. As I will discuss in a moment, we are therefore tightening our guidance to adjusted earnings per share by raising the lower end of the range. After I walk through the remainder of the P&L results, I'll discuss our revised annual guidance in a little more detail. For 2012, we expect reported gross margin to be in the range of 61.5% to 62.5%, and after adjustments, in the range of 64% to 65%. In the first quarter, the 2-point decline in GAAP gross margin to 61.9% versus the prior-year period was the result of increased operational variances, higher manufacturing costs including period expenses associated with the remediation of our plan for our regenerative facility. We also incurred about $1 million of costs related to discontinuing minor product lines, as we continue to optimize our portfolio. We calculated adjusted gross margin by backing out the adjustments to cost of goods sold detailed in column A of the adjustments table on our press release. During the first quarter, our adjusted gross margin of 64.1% was down 70 basis points from the comparable measure in the first quarter of 2011. Higher department spending…

Thank you, Jack. We're certainly pleased with our performance in the first quarter. That said, we still have much to do to reach our goals for 2012. We've set 3 major goals for the company this year. First goal is to improve execution on fundamentals, including in our operational areas. We were able to meet our production targets in Plainsboro for March, clearing a large portion of our regenerative product backorder. However, we still have work to do to remediate the issues the FDA raised in the warning letter for the Plainsboro facility. We are on track to our internal plans and making good progress in our Plainsboro facility remediation program. In 2012, ensuring our ability to supply products consistent with the demand and meet customer expectations is a top priority. Hence, we're aggressively applying both financial and human resources towards that end, particularly during the second quarter. The second goal is to optimize our operations. For our size, we are a complicated company with more technologies, products and locations than even some larger businesses. That complexity is a significant opportunity to optimize the organization to a more streamlined footprint and common systems. We kicked off this journey in 2012. At our Analyst Day meeting later this year, we plan to discuss our efforts to streamline our operations, processes and activities. Finally, we have been also hard at work implementing a new ERP system and expect our first field implementation later this year. Each of these initiatives will contribute to optimizing the company, enabling our efforts to become a multibillion dollar organization. The third goal is to accelerate growth. I will update -- I will provide an update on the 2 acquisitions we are integrating in our efforts outside the United States. The SeaSpine integration has progressed as planned. We…

[Operator Instructions] We'll take our first question from David Lewis with MS.

This is actually Jon in for David. With depressed organic Extremity sales along with, I guess, increased quality systems spending expected in the first half of '12, I guess we expected to see improvement in gross margins to occur throughout the year. However, I guess we didn't see as much pressure as we maybe would have expected in the first quarter. Is it still fair to say that we would expect the margins to maybe have turned higher throughout the year?

Why don't you take that, Jack?

Sure. All right. So a couple of items. One, we stand by our annual gross margin guidance for the year. So that's point 1. Point 2, a critical thing to recognize about gross margin in this quarter, and in fact, this has been the case all along for us, is that price was not a driver to the downside. We got the benefit of some price on a consolidated basis. Most of our businesses were able to pick up price. Third point is, look, if you go back and take a look at it, our gross margin moved around a fair amount. It typically moves more in a given quarter from one change or another in our supply chain to manufacturing, variances or changes in departmental spending, then the trend line. So we always caution people not to try to derive too much significance out of one quarter -- gross margin trends one quarter to the next. That said, we're pleased with the progress we're making around the company in our operations. They definitely have more discipline, but we're also going to be spending a fair amount of money over the balance of the year on quality systems and the like, and we think that the sum and substance of all of that will basically keep us within the guidance range as the year goes by.

Okay. Very helpful. And then also, a quick follow-up on, I guess, the decision not to raise the top end of the EPS guidance following the strong EPS achieved in the first quarter. Maybe that the street just put too much of the cost pressures in the first quarter? Or maybe the quarter is more balanced than we thought, or is there probably substantial, I guess, upside there, to the numbers?

Well, I'd make a couple observations. One, and probably the most significant is, look, we've got an awful lot that we're working on this year around the company, and we've talked about that pretty systematically on the 2 calls we've already had this year. So our view is the strong performance in Q1 -- the strong performance in Q1 essentially took some risk out of the bottom half of the range, and that's how we look at this. So we think that our odds of hitting our guidance range have gone up, and we feel very good about that. But we're not yet at the point where we want to declare victory on the year. So our solution was to pull up the bottom of the range. And I don't know, Pete, if you want to elaborate.

Yes, I mean, just to give a little bit more color, and most of you remember in our February call, we talked about the $190 million to $196 million revenue range, and we talked about it was quite a wide range at that time. And we also explained that it really came down to a big portion of that was our ability to ship x level of products in March. The good news is we achieved what we needed to achieve, and we shipped the levels of product that we needed out of the Plainsboro facility, which took us to the higher end of the revenue range. That being said, but as Jack said, it just really derisks some of the rest of the year. The other side is, with obviously having this risk, we were quite tight on our expense control in the first quarter, which helped us across the board. We have to loosen some of that up to invest in some of the other programs we have throughout the year. But we're pleased with the execution that the team really around the world delivered for us.

Next from Citi, we'll take a couple of questions from Amit Bhalla.

So a quick question on -- to the segments within the International business. Can you talk a little bit more about the o U.S. performance in Neuro, as well as Extremities? Give us a little bit more color on what happened in those 2 segments.

Yes, Amit, I mean, International, I'll just kind of frame up at a high level. It's playing out pretty much as we had planned. I mean, it's a little bit of the tale of 2 areas. I mean, Europe is down, although in line with what we expected in our planning process. And our Latin America and Asia-Pacific businesses is up, doing reasonably well. Extremities, it's a mix of stories. I think in our markets, where we bring the products, in emerging we're actually doing well. We have some new entrants, areas where we're actually bringing on some new components of the business. The Neuro business as you well know, is a big chunk of our o U.S. revenue. A large portion of that is actually tied in Europe, and so things like capital and some of the other products. We've had probably more pressure there and actually been down somewhat in some of our Neuro categories outside the United States, particularly in Europe. And as noted in the numbers this quarter, actually, U.S. Neuro did quite well.

And as a follow-up, you've talked in the past about undertaking some restructuring efforts and potentially later this year. I was wondering if you could talk a little bit more about your thoughts on restructuring and your evaluation of where some of that can come out for the company.

Yes, Amit, I mean, I'm not going to speculate or kind of give you what our target is. That will be for later this year. But what we're doing in the things that we've kicked of this year is really doing a broad look across the company about how to optimize our overall structure. And so it starts with the ERP, enabling, taking multiple instances, down to common systems so that we can actually rewire the company in different ways to be more effective. It's a broad look at our distribution structure, as well as our make structure, and designing and looking at certain centers of excellence about how we will actually grow out of those platforms. It's taking a hard look at where we have capabilities in emerging markets, as well as capabilities in some of our traditional markets. And then also it's taking a hard look at the overall sourcing strategies. When we think across all of those different components, we've got some nice opportunities that ultimately will increase our overall leverage. And so that's what our focus is. And as we've spoken about, we'll come forward with that plan later this year and feel good about the start that we've made with getting that pulled together.

Moving on to Chris Pasquale with JPMorgan.

Maybe just to start off with -- of the 3 main issues you cited for the 4Q shortfall, you had the inventory destocking in Instruments, the International weakness and then the disruption in your Extremity sales force, it sounds, if I'm hearing you correctly, like maybe all 3 of those have made some significant improvement. Could you just talk about where you are with each one of these issues? Which ones, if any, are still going to be a drag as we move into 2Q?

Yes, Chris, let me -- I'll start, and then Jack, if you want to add some comments. So relative to the alternate site Instruments business that we had, the destocking and distributors down to lower carrying levels, as we talked about on the February call, we believe that a majority of our distributors are going to be jarring at something of a lower inventory level. And I can't quote a specific number because each of them has different target numbers but lower than what they had carried in the past. And we believe right now that, that is actually in process. Some of those distributors have reached those levels as we speak. There's still a few that will probably reach it in the second quarter. So we believe as we had stated earlier that by the end of Q2, we'll really be at normalized levels. As we look at out-the-door sales, those sales to actual end users, our share position looks good and is actually up. And so we feel confident that, that will normalize here in the second quarter. So that really is kind of the alternate site Instrument piece. Relative to the Extremities business, a big portion of the Extremities challenge we had in Q4 was tied to a combination of 2 things. One is, the integration of Ascension and just a lot of the activities of taking a distributed sales force and integrating it into a direct sales force. That complemented with the challenges that we had in our Plainsboro facility. In fact, we were actually having multiple upgrades going at the same time. As we communicated in February, we are up in making the products, doing well, getting products out the door, so that issue has been resolved. And secondly, the integration with Ascension, as I had mentioned, financially is complete and essentially, from a product training and integration of the lines, is on track and doing well. We suspect really through the second quarter, we'll be focusing really on picking up more customers and cross pollinating the product lines into the new customer base. But the 2 of those are on track. The International piece really was a very small component in Q4. It was as much about timing and changes and such, and so I've looked at our plans for international this year are very much on track. I will tell you with the changes that we are focused on particularly in the emerging markets, where we're working on registration strategies and distribution, that we are going to have some lumpiness. Some quarters will be up, and some will be down just because of the changes. But our growth for the year and really our future outlook from International standpoint, particularly Asia and Latin America, we feel very comfortable with.

Great. And then you had previously said that you expected to finish your remediation of Plainsboro during 2Q. Is that still a fair assumption?

Well, what we talked about is our -- the substantial amount of work that we would complete within the first half. And yes, we still feel that, that is where our goal is. We're on track to those internal plans. How that correlates to when the FDA may come and what other type of input or work they may want us to do, obviously we can't predict that. But we're on track to our plans here for the second quarter.

Moving on to Piper Jaffray with Mike Miksic.

I'm going to apologize in advance here. We're all juggling some calls, so I may have missed this. But is it clear or is it true? Am I seeing this right that your sort of supply issues out of Plainsboro on the skin side, on the collagen side, have been -- you sort of caught back up here at this point?

Yes, Mike, It's Pete. Fundamentally, we met our expectations for the first quarter. Have we built up the supply levels where we want them to be for the rest of the year? No, we're still building that. And in International, we've got a little bit more work to do. But as far as where we wanted to be in Q1, we definitely met that to might slightly exceeded where we wanted to be. But realistically, I think we're quite in line with you talked about in the February call, which is, it's really going to be through into Q2 until we get to the levels that we want to be. But as far as customer issues and things of that nature, we're out of that. It's really about getting the supply levels to where we want them.

Okay. Just because if I just look at the business, and I know we don't need to get into the weeds of plus or minus Ascension. But just at a cursory analysis of what we thought Ascension might be doing in the quarter and how important biologics is to extremities, it seemed like that business ex Ascension was pretty solid. And I'm wondering where there other new Hardware products, implant products that sort of maybe helped backstop your building supply on the biologics side?

Well, I will tell you that obviously, the biologics and the skin sales were up, and that did a nice job. But realistically, the complement of the Ascension products with our legacy products together really is opening more doors for us, and so our lower feet -- foot sales ,mid and hind foot sales and such actually did quite well within the quarter on both sides of the acquisition. So we did have some nice Hardware growth as well from the Extremities product lines.

Okay. So something like synergy here between their products and your sales force?

Oh, yes, absolutely. I mean I think there's a really nice combination of new technologies from pyrocarbon and new products in Ascension that are opening doors for people who want to talk to us about different things that we might not have had call points before. And then a lot of Ascension doctors that have used products, seeing the Integra products, in many cases, first-time, new, as well. So there's some good cross-pollination there. As well as we've increased the robustness of our upper extremities line, and so that's opening some doors and some of the same practices where we might have had some strong lower access. Now we're starting to see some of the upper extremity guys in the same practice.

That's great. And I one follow up here on some of the new lines that you've given us, reporting lines, which are very helpful, by the way. The Extremities and Spine and Other, those lines, when you talk about U.S. Extremities, for example, and U.S. Spine and Other growth, just to make sure I understand this, the U.S. Spine and Other would include the biologics that are sold into the U.S. Spine business along with the implants that are sold there and the same for Extremities?

Correct.

Within biologics? Okay. And so looking at U.S. Spine and Other, understanding, of course, that you're bringing together in the current quarter SeaSpine, can you give us any color if that was a U.S. growth, what the o U.S. growth looked like?

The o U.S. growth in Spine. That's a good question. It's off an extremely small base. So I think the critical thing to remember is it actually in percentage terms was quite good, but it was off a very small base. So we're not running any victory laps on it. But that business is effectively launching for us, and we're pleased with it how it's going. But it's not a big contributor yet.

Okay. It's a dollar basis, small, but maybe growth faster than just because of the size?

Yes.

Yes, I mean, it just matched up to say. I mean, from our expectations for our Europe launches and our Asia launches, they're doing quite well. But to Jack's point, they aren't really, at this point, making a big difference in the overall aggregation.

We'll take our next question from Bruce Jackson with Northland Capital Markets.

Did you guys say how much Ascension and SeaSpine added in terms of revenue for the quarter?

No, we did not, and we're sticking with our usual policy of not doing that. The reason, for those of you who haven't heard the explanation, is that these businesses are really fully integrated into the legacy businesses. So the Ascension piece is in the bag with the rest of our Extremities products. SeaSpine is integrating. We're doing a lot of cross-pollination sales there, distributors carrying both. So they substitute for each other. And for us to try to really tease apart which aspects of that growth is acquired versus which aspect of the growth is the product of our own investment is to our mind, analytically unsound. So that's it.

Okay. Then just one quick question on the OrthoBiologics. You've got both allograft and synthetic. Is there any particular group of products within the OrthoBiologics that are driving the growth?

So our OrthoBiologics across the board is actually doing quite well. I mean, our Synthetics, our Mozaik products, as well as our demineralized bone products, both are doing very well. I've mentioned in my prepared comments about Evo3, which has done quite well for us and continues to grow. But we had some very nice performance in the Mozaik product lines as new distributors came on, and quite frankly, the product has penetrated in different formats more broadly within the customer base. And that performance really under OrthoBiologics has continued really around the world for us. We feel pretty good about the growth plans we've got.

Moving on to Glenn Novarro with RBC Capital Markets.

Had a follow-up question on the U.S. extremities number in the quarter. By our math, when you strip out Ascension, it looks like the U.S. business grew in the high-single digits, which is better than what we saw in 4Q. Is that in the ballpark and is that in line with the market, better than the market? Any commentary? And then I had a quick follow-up on Spine.

Well, I guess I don't want to repeat the response I just gave you on the organic growth. So rather than talking about implied organic growth or anything vague like that, I'll just say we feel that the whole Extremities business is doing well, that the addition of Ascension has energized the sales force. That progress toward the resolution of our supply issues, particularly in the Dermal products has made a big improvement on that side of things, and we're very pleased with how it's all running now.

Could you please comment on whether or not you think you're gaining share, you're growing with the market?

Yes, Glenn, I think we think we're in some cases clearly taking some share to slightly at/or above the market. Again, I'll remind you, and you know this, is that unlike a lot of the other Extremities portfolios, half of our volume really -- a big chunk of it is in the biologics and skin-based products, of that nature. So we obviously had a strong quarter from that standpoint, which helped drive our overall growth. That being said, the metals did quite well in particular areas, and it's related to the synergies that we're gaining of both the portfolios put together.

Okay. And then just Pete, in your earlier remarks you said that you had -- on the Spine side, brought on more distributors. Can you quantify how many distributors you added? And are these distributors exclusive?

Glenn, we're not going to quantify them because it's just somehow multiple people working for them. Some of them are one-guy shops. The main thing is that we're getting the right coverage plans on specific doctors that we didn't have before, and so we're gaining critical access in markets that we haven't had. Relative to the second part of your question was exclusivity. Typically, we do very few agreements where we do exclusivity.

So then just as one follow-up. Curious, how do you get these distributors to be selling your product versus maybe Medtronic or J&J? Or are they selling something that you have that they previously had not sold by one of the other players?

Well, typically it's a combination of the products that we've got in our biologics portfolio, as well as some differentiation we think that we've got in our medics -- medical -- our metal portfolio. In many cases, these are distributors that might not have been with some specific big guy in the past or they were, and for whatever reason, they decided that the combination of our portfolio, both biologics and metal, was more appealing for their long-term growth of their business. And I think that's one of the interesting opportunities for a company of our size is with our biologics and now fundamentally comprehensive metal portfolio, we can compete and be a more appealing partner to a distributor than a company that may be significantly larger and might be planning on doing different approaches in their distribution strategy. So we feel pretty good to compete that way and really haven't had to do exclusives. Obviously, choosing those partners wisely and having contracts that ensure the right focus on your products are some of the things that we try to do to our contracting, as well. Jack, I don’t, if you want to add...

Well, the only thing I would sort of clarify is it would be pretty unusual for us to have a distributor in Spine Hardware that was also selling the Medtronic or the InFUSE hardware. That would be -- more likely if we were nonexclusive with the distributor in Hardware, it would be other relatively small spine companies, and we line up very well under -- within the distribution portfolio, that distributor's portfolio. We would line up very well under those circumstances.

Got it. If I could just ask one quick follow-up. Because you guys do help supply a component, InFUSE, and you are a biologic player, and your Biologic numbers were very good in the quarter, are you seeing the issues that Medtronic is facing with InFUSE as a plus for your business? And I'm wondering is that also one of the reasons why you're able to pick up more distributors?

Well, I think, as you know, we have for 10 years now, refused to comment on our perspective on InFUSE from the vantage point of our capacity as a supplier because we value that relationship and it's a good one and profitable for us. It is the case that I think to some degree, everybody in the industry who sells OrthoBiologics that compete with InFUSE have to some degree, attributed strong growth in that field to taking share from InFUSE, at least on a procedural level. Whether it's in dollar level or not is a different matter. So you've heard lots of companies do that, and I think that we would certainly -- I'm sure, had our products go into procedures, in lieu of InFUSE. So that has certainly happened. But I don't know whether there's any ability on our part to quantify that.

Yes, I would just add, Glenn, on that last part of your question is, we know we've been very successful of adding a significant amount of new distribution, mainly because of the breadth of our portfolio. And I would attribute the growth really about our ability to track new distributors because of our product portfolio, and that's driven the growth probably more so than the other item that you mentioned.

Moving on to Spencer Nam with ThinkEquity.

Just a -- I have a quick question on the overall, the Spine market opportunities and -- sort of what you guys are seeing from your competition. Is it -- there seems to be a relatively positive view on the rest of the year despite some of the challenges. What are you guys seeing out there? And how do you feel the competitor position is relative to, say, last year or previous couple of years or versus today?

Spencer, this is specifically relating to Spine, you're asking the question?

Yes, that's correct.

Yes, I mean, look, I think from our perspective and again, we kind of always state this, I mean we're still a small player, so our broader view of the market isn't quite as strong as a lot of other players. That being said, some level of finding the plateau here, we're hoping that we're getting to some of that point. That being said, pricing pressure and consolidation, things of that nature, we still see things taking place every day that still have some pressure with on the overall business externally. We still like business. I mean, again, it's largest market that we'd play in by any conceivable amount of measure. And it's one of those markets that obviously have the trends that play to the overall demographics. And so it's why we believe that it's still a very good market for us. I think as we talked about some of the previous questions, the biologics component, to help differentiate us and bring metal, as well as biologic solutions to customers, is a strong component that we will accelerate. And you know, versus last year, we were in the midst of a lot of integration work, and I think the integration went off extremely well. But with any integration, you have some level of disruption. All of our teams now are fully integrated on -- our operations team, our marketing and sales groups. As well as, as we mentioned in the prepared comments, that we've begun at cross pollinating a vast majority of the products. As well as we have some new launches. So when you take a look at the new launches, the MIS line, our Deformity line, which really gives us for scully [ph] season, we think a world-class solution that we haven't had in the past. You match up at all those positives with some of the headwinds here in the market, we still feel based on our size that we can do reasonably well. That being said, I'd like to see the market being a little bit better than it is, and hopefully, we'll see some changes here down the road.

I appreciate that. Just a quick question to Jack. You have these convertibles coming due in the next few months.

Yes.

So how are you guys thinking about managing that process here?

Well, our plan all along -- it doesn't require a ton of management. We have a $600 million line of credit, revolving credit facility with a big group of banks, led by Bank of America. We put that in place a couple of years ago. We amended it last year to get longer terms and better terms. And we're going to draw -- we're going to borrow on that revolving credit facility to repay the converts at the beginning of June. And then what we might do in the way of longer-term capital, of course, remains to be seen. But we're very well positioned from a capital standpoint, and that's been the plan all along with our banks.

Moving on, a question from Argus Research from David Toung.

I'll take another shot at the Spine market. I think you've talked in the past about where your margins and your opportunities are versus some of the more -- some of the other larger players. You obviously talked about some of the -- and I think about where your Spine is headed. But where are your margins coming in? Is it coming in where you'd like it to be? And is it still at a point where it's a mid [ph] contribution to the overall average?

So our gross margins in Spine remain far above our corporate average. So start with that. I guess, the second point is, we are not immune from the pricing pressure that everybody else in the industry is reporting and we have had comparable pricing pressure so on our Spine Hardware business. So on the one hand, it's a very, very profitable business no matter how you look at it. On the other hand, it is under pricing pressure. And in that regard, we're the same as everybody.

Yes, I would just add that as part of our plans, looking at the company on ways to optimize. I've mentioned sourcing. Our opportunity as we gain scale in Extremities, we gain scale in Spine, to actually to be able to get better opportunities in cost of goods and products is something that we're getting to that point that we'll be able to go after, and that will be part of our plans in the future, as well as the market in Spine has been somewhat volatile.

Great. Let me just take another question. Pete, you mentioned that you'd like to see the International business grow more. Where would you like it to see in terms of percentage of overall, say, 3 to 5 years down the road?

Yes, we did -- David, we haven't broken out. Obviously, International is a big bucket of countries. I mean, when you take a look at our emerging market countries, we're expecting those to be in the high teens or above in many cases. That's then combined with markets like Canada and Australia that we see which are much more mature markets, running in, I'll say, more classic growth rates closer to what the United States is. My biggest component really is taking a look at actually as we grow, increasing our overall percentage of our sales outside the United States. And as I mentioned, we're roughly 24%. Getting closer to 30% as a goal and a reasonable strategic planning horizon is something that we've talked about from a company standpoint. We've been successful in the U.S. We've planned to be continuously successful in the U.S. But when you take a look at China, you look at India, the opportunities in Southeast Asia, Latin America for us, we've had some very good starts. All of those markets have potential to be strong, double-digit growers for us. The only point that I'd caution you with when we're going through these changes, there's clearly going to be windows to timeline. We're going to have low growth because of specific structural changes we made to set up future growth. And we're in the midst of doing some of those things right now and feel pretty good about the plans that we have in place country by country.

Jayson Bedford with Raymond James has our next question.

Just a couple quickies here. Price -- I apologize if I missed it. But I thought you said year-over-year price was actually up. So if you'd just elaborate a little bit on that, I'm guessing it's a function of mix.

Yes, I mean on a consolidated basis, price was up. And indeed, it was up sort of in all of our segments except Spine Hardware, and it was flatfish in the OrthoBiologics business. But everywhere else, we got some benefit from price. So consolidated -- the consolidated impact was price is beneficial.

Okay. And Jack, is that expected to continue in and around that range?

Yes, I mean, we haven't seen any reason to think that either the favorable trends in our other businesses or the pressure in Spine will alter their trajectories in the next couple of quarters.

Okay. And just on the remediation efforts at Plainsboro, a little unclear. At what point will you be ready for that FDA to come in and reinspect the facility? And then secondly, is the FDA currently looking at other facilities? And do you feel comfortable that you're fine in the other facilities outside of Plainsboro?

Yes, Jayson. Look, at Plainsboro, when it comes to the immediate observations, I think we've talked about this in the past. We think we've done a very good job of covering all those. From our third-party experts looking at, experience of what the agency come back, looking, we're really going through the complete quality system right now and making sure that everything is to the level that we want it to be. And doing different investments in things, mainly because some of these are obviously important to implement for the specific facility. But if you think about we're opening up a new regenerative facility, we're going to be transferring all those new procedures and protocols -- those procedures and protocols into the new facility. We actually want to go through and inventory all those and make sure that we know we have a very high bar set for when the FDA comes in to do that initial inspection as well. So that's why some of the timing plays into this. And so when it comes to the warning letter, we believe that we've gotten a lot o the work right now when it comes to full comprehensive look, that's why we're really spending a lot more time and money really through the second quarter, as really our kind of our peak to get those things done. The agency, I wouldn't want to speculate when they want to come in. But as you know, they can come in at anytime, and we're acting accordingly that they could. But it has been a very important part of our journey as well is we're also moving towards common quality components. And so just like as we're evolving the capital structure within the given plant 105, and we think we're going to have a best practice, then we want to roll some of that out to other facilities. And so we have been looking at other facilities and we've had some tough audits that we've closed out, done well. We've actually had some strong audits, where we've no Form 483 observations. But the broader point, though, is as we learn things and see how the agency is thinking about different areas, different part of the A-20s than they might have just a few years ago, we're trying to proactively then take those ideas that we've learned and implement them in other plants, which is driving some of the other at incremental expense in our other facilities that we talked about on this call and we've talked about in previous calls. But I feel good about our progress. The team is very focused, taking it very seriously. We've got a good quality group that we have in place, and quite frankly, that we're building in additional to that. But really, through second quarter, it's still a big chunk of the focus that we'll be putting into to get the warning letter work where we want it to be.

[Operator Instructions] We'll move on to Steven Lichtman with Oppenheimer.

Really, just one question. We talked a lot about the drivers in Spine, in Extremities. Pete, I'm wondering what you think in terms of will get Neuro reaccelerated expect for -- aside from, obviously, the macro in Europe. And what kind of product pipeline are you seeing that you think can drive the growth better here in the coming quarters and years?

Yes, well, if you take a look at it, I mean, for the actual quarter itself, we were pleased with how U.S. Neuro did overall. And I think our Duraplasty and a lot of our flow products did well. NeuroCritical Care solutions did well for us. And really, where the pressure came was primarily focused in Europe. That being said, the team has been very focused on how to bring more products into the portfolio. And so I'm not going to call them all out, but we actually have in the back half of the year a handful of introductions in some of our legacy product lines that we think are going to bring some new and unique capabilities from everything from our MAYFIELD product lines, to bring in some new capabilities to allow how now with image-guided surgery different components can be added on to make it more productive, to new tips and things in our Tissue Ablation world, as well as monitoring products. So we're really trying to get our product lines updated, which we think are going to stimulate some new growth. That's one part of it. The second part is, with the largest really neurosurgery sales force in the United States and with the call points that we have, we've been spending a good chunk of time looking at licensing opportunities to bring some products in from some smaller companies that may not have our reach. So those would really be the 2 areas. It does comes down to new products. And we've got a great field team out there that really knows how to move some products with the right capabilities. To give you an example, we're actually tagteam selling our new LED headlamp, the neurosurgery sales channel with our instruments channel. And one of the reasons that LED headlamp is doing so well is how well those 2 work together. And I think it's a great example of our diversified model. And the synergies that we can generate by selling into GPOs, selling into administration by having a call point with the neurosurgeon, who actually makes the decision then sees their buddies in the lounge who might be in other disciplines, who sees this tether-less [ph] light and says, "where did you get that at?" That's a great example of one type of products that we want to bring into the fold to acclimate our differentiation or capabilities as a company.

And we'll take another question from Imron Zafar with Jefferies.

Just a quick one for me. Can you just give us your latest thinking in terms of M&A strategy? Is it fair to assume that near term, you're still pretty full, your hands are still pretty full with integration of Ascension and SeaSpine? Or should we expect more acquisitions over the next 4 to 6 quarters? And without maybe showing your hand too much, what specific areas or other priorities? Is that International or is that more internal growth, or is it U.S. Spine? Can you just sort of give us your thinking there?

Sure. I would say several things. One, in our view, the Ascension and SeaSpine integrations are finished, and we have you got those organizations working well and would be very receptive to the right transaction in either of those orthopedics spaces. So the question is the right transaction, of course, and as you know, or I'm sure have read, we're quite disciplined about that we go about this. So yes, that would be something we would do. International, we've done over the years although not recently, a half dozen or so acquisitions outside the United States, including we've acquired our distributors, of course, but we've also done substantive device company acquisitions outside the United States. We would do so again. So we think that there are a lot of opportunities, a lot of possibilities for that. As you know, it takes 6 months to do a deal typically. Sometimes it takes 4, sometimes it takes 24, but the pipeline is a long one, so I wouldn't expect any announcements from us eminently or anything. But we're definitely active. We're definitely looking at opportunities.

We'll take our last question from Mat Miksic with Piper Jaffray.

Just a quick follow-up and, I'm not sure if somebody asked and I just missed it. But you had some expectations for -- kind of a moving target, the growth in lower extremities, foot and ankle or however you look at it. Heading into the year, heading into the quarter, can you kind of remind me where you thought things are growing? Maybe, your latest thoughts on where you think that market is growing?

Well, Matt, I don't know if we called out some of the specifics. But I think we've talked in some previous discussions that for foot and things, we're -- there's lot more pressure in that area with competition and stuff. But one of the things that I've mentioned maybe before you jumped on was the fact that our lower extremities, particularly in mid-foot, hind foot, in our core product as well as now with the complement of the Ascension products, has done quite well. And what our belief is, is that we're getting into more doors than we might have in the past without the Ascension product line. And then the combination of the Ascension and Integra lines together, we're getting into a lot of legacy Ascension doctors that hadn't seen our products, and the result of that is we're being able to actually grow our overall revenue base. But from a standpoint of procedures growth and things of that nature, we still see it as quite healthy. We still see that market has lots of potential to grow, mainly tied to a lot of the demographic trends with obesity and also with aging population. We still see those lower extremity procedures being a strong part of our core. And that will be in the area that we're obviously looking to invest and bring more and more products into that portfolio.

So your -- so the market -- so that's helpful. The market just in round numbers, I mean, understanding you're doing well with the synergies of products that you brought onboard, but the market in total maybe -- is it right to think about it as a market that's growing in the upper-single low-double digits or the mid to upper-single digits? Or how would you frame just to give us a sense of how the market might be performing? And if that's changed at all, if what you've seen the quarter has changed that?

Yes, I mean we think it's in the upper singles. There might be some components of it due to reimbursement stuff that it might be in the low double but probably more in the upper single. We haven't seen really any trends from Q4 to Q1 that would change anything. I would state that in the first half of 2011, there was clearly stronger growth. We had spoken to, and I think many others did, that we didn't see as much of the strength in, say, the second half of 2011. But since the second half of 2011 coming into 2012, we haven't really seen any major changes in procedural growth.

It looks like we have no further questions at this time.

Thank you for joining our call, and we look forward to speaking to you next quarter.

And ladies and gentlemen, that does conclude today's conference. We thank you for your participation. Have a good day.