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

Good morning, and thank you for joining us for the Integra LifeSciences Second Quarter 2013 Earnings Results Conference Call. Joining me today are Peter Arduini, President and Chief Executive Officer; and John Henneman, Chief Financial Officer. Earlier this morning, we issued a press release announcing our financial results for the second quarter of 2013 and confirming our full year guidance. Certain statements made during this call are forward-looking, and actual results might differ materially from those projected in any forward-looking statements. 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 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 Investors 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. As we mentioned in the Form 8-K we filed on July 16, the FDA has begun its reinspection of our Plainsboro, New Jersey manufacturing facility. We do not expect to comment on or discuss that inspection until after it has concluded. We will communicate to you after the inspection is over and we have analyzed those results. I will turn the call over to Pete.

Thank you, Angela, and good morning, everyone. As we said on our first quarter conference call, our most important priorities are supporting our customers through the voluntary product recall in April and preparing for a successful FDA reinspection. We have made good progress on these areas. We have a third shift running in our Añasco manufacturing facility and have efficiently allocated product to our most important customers. In addition, we are carefully managing production among our proprietary products in our Private Label business. That said, we're still working hard to restore inventory of our effective products, and some backorders will persist into the fourth quarter. Our goal is to have successful FDA inspections in our facilities operating under warning letters this year. We're focused on the quality systems and operations at each site. The FDA is in Plainsboro now, and we expect the agency to return to both Añasco and Andover before we report the third quarter. We believe we are well prepared in all of these facilities. We will learn how successful we have been in retaining and recovering customers and in preparing for FDA inspections between now and when we report the third quarter earnings in late October. At that time, we expect to have a better sense of our long-term commercial consequences of the recall and the extent of incremental remediation expenses, if any. In light of this, our guidance remains unchanged at this time. Turning to the top line results from the second quarter. The recall-related product shortages had a significant impact on our consolidated revenues. But for the supply issues, we estimate that the revenues of our U.S. Neurosurgery, Private Label and International businesses would have been higher by a total of $10 million to $12 million. Moving on to segment performance. Our Extremities business…

Thank you, Pete. Our revenues in the second quarter were in line with our guidance and our expectations. Since we faced a fair amount of near-term uncertainty in our business, we clamped down hard on spending that was not essential to improving product supply, supporting our customers and preparing for FDA inspections. The result was a higher adjusted EPS than we expected than we last guided in May. Looking to the second half of 2013, Pete highlighted both the importance and the variability inherent in our near-term priorities to support our customers and have successful FDA inspections between now and October. In addition, we have targeted spending priorities that we plan to approve once we clear some of these near-term hurdles and gain better visibility into the second half. Our own internal expectations generate a wide range of outcomes on both the top and bottom lines. These have not changed since May. And as a result, neither has our guidance. Now I will walk through the P&L results and our detailed expectations for the full year. In the second quarter, GAAP gross margin declined 3 points to 60% versus the prior year period, primarily as a result of higher spending on quality systems in the plants, unfavorable product mix driven by supply shortages of high-margin products and the Medical Device Excise Tax, which we report in cost of goods sold. We calculate adjusted gross margin by backing out the adjustments to cost of goods sold detailed in Column A of the adjustments table in our press release. During the second quarter, our adjusted gross margin of 62.5% was down 3 points from the comparable measure in the second quarter of 2012. For 2013, we expect reported gross margin to be between 60% and 61% and adjusted gross margin to be…

Thank you, Jack. While we're focused on addressing the needs of our customers and having successful FDA inspections in the near term, we remain committed to our larger-term -- longer-term margin improvement and growth acceleration targets. In the category of accelerating growth, we made recent progress in 2 important product lines, shoulder and Skin. First, we're excited to announce the 510(k) clearance of our Titan Reverse Shoulder System. Differentiated features of this system includes simplified conversion of a primary total shoulder, or hemi for fracture, to a reverse; minimally invasive interoperative options for surgeons; and interchangeability with the primary and hemi for fracture systems; and options for either a press-fit or cemented stems. We expect to begin a limited market release in the U.S. in the coming weeks and, upon CE mark clearance in Europe, begin a full global commercial launch in the first quarter of 2014. This is an important product launch for us as it gives us a much more comprehensive shoulder product line that our distributors are looking for and gives our surgeons more options in the OR. We have another positive development to report from our Extremities group. As you know, the diabetic foot ulcer market is growing and is important for us. Our pilot study on the use of Integra Skin in diabetic foot ulcers was just published in the journal of the American Podiatric Medical Association. The pilot study concluded that the Integra bilevel -- bilayer wound matrix is easy to use, safe and effective when used on diabetic foot ulcers in an outpatient clinical setting without requiring an additional autograft procedure to achieve closure. Our pivotal DFU clinical trial continues to advance, and the completion of enrollment is expected between the fourth quarter of this year and the first quarter of 2014. Finally,…

[Operator Instructions] We'll take your first question from Chris Pasquale from JPMorgan. Christopher T. Pasquale - JP Morgan Chase & Co, Research Division: Can you start off with -- provide some color on the different components within the U.S. Spine business? How much was Private Label down this quarter, and what were the execution issues you mentioned on the Hardware side?

Yes, Chris, if you take a look at -- across our overall Spine & Other category, I would kind of frame it up this way: about 60% of that provider impact was associated with the recall of products related to our collagen products. 40% of this tie [ph], then, was related to Spine. And then if you think about within the Spine category, I'd say a little bit more than half was associated with execution-related items and the rest of it in market. And candidly, on the execution front, there's kind of 2 areas: One is, I would say, our effectiveness of converting ineffective distributors out and then bringing up new ones. The timing on that slid out some. And we made some specific decisions on some raw materials relative to some key products in the Orthobiologics side to do some work relative to some of our broader remediation efforts, which we completed. But it had an impact of slowing some supply during the quarter. Christopher T. Pasquale - JP Morgan Chase & Co, Research Division: Okay. And I mean, do you feel like you're in a position now where those issues are under control, or is this something that's going to linger into 3Q?

Well, it's as I commented. But we believe that, from the standpoint of the distribution plans, that we've got those in good shape. And the supply issues have already been addressed. But it will take, as I commented, through the end of the third quarter here to get that ramped up again. But I feel quite good about the plans we have in place and the ability to get that back on track. Christopher T. Pasquale - JP Morgan Chase & Co, Research Division: Okay. And then on the Extremities side, you got the Titan approval. Where do you feel you are now with this shoulder product line? You've got a reverse option in place. What else do you need to really be competitive in that space, and how big a driver could Upper Extremities be for that business in 2014?

Well, I think at this point in time, we believe we've got what we need to be a serious competitor within the shoulder arena within Extremities. And as you well know, obviously, it's one of the bigger-ticket items that we haven't had. And so that percentage of growth, obviously, is a drag when you compare us to other folks. So we're quite excited about it. I would also comment that we believe we're more than a "me too," and I think that there's been a lot of good work of incorporating kind of the "best of" concepts from other suppliers out there. We put a lot of energy in this modular body design, which we believe, as younger individuals have more work, there's more revisions later, there's a big chunk of capabilities there. And then the other aspect is even just from a cost standpoint and how we think about the hospital itself. I mean, we've focused on this product being less instruments raised than many other products that are needed to do that. And that's really tied to this LEGO or modularity, if you will. From a growth standpoint, we're being conservative about, as we come in as a new player into the market, about being able to move into the low single-digit share range and, over time, be able to get something above that, potentially in the 10% share range, we think, is very reasonable with the technology that we have. Obviously, one of our other interests, as well, is to couple some of our regenerative technologies in that area as well, and we look to do that. But at this point in time, we're just excited we have the 510(k). We have this pilot going on -- or a commercialization ramp-up, and then we'll bring this into full commercialization here at the end of this year going into 2014.

We'll move next to meet Amit Bhalla from Citi.

This is actually Adam in for Amit. So I was just wondering if you could talk a little bit about Añasco. I know last quarter you talked about doing some product reprioritization to potentially be able to hit the upper end of the guidance range. How is that progressing? What kind of decisions were you making? How did that go?

Yes. Well I would say across the board, we feel very good about the progress we've made in our Puerto Rico facility. We've been extremely diligent to -- first priority to make sure that we get all of the items that we need to get addressed by the FDA, that in coordination with being able to meet supply for our customers. And as I'd communicated last call, we believe that there would be clearly some customers that we would gap. We feel quite good that a vast majority of our customer base, we were able to, with substitutions or some creative approaches, be able to address a lot of their needs. Now that being said, we still have certain SKUs and things that we'll have through the end of this year that's getting to adequate supply. But I feel quite good about that. The other component that I've mentioned before was our ability to bring up a third shift and be able to ramp up our supply at a significantly higher level. We were and are successful at that and continuing to, in conjunction, do our remediation work, which I believe we're making good progress on, and also run a full third shift and be able to ramp up our supply, candidly, at a slightly higher level than we had initially planned. I mean, a little bit slower start, but I believe as far as where we are now and how that plays into the second half of the year, we're in good shape with how our supply's ramping up.

Okay. And then just one follow-up. So on DuraGen customers, so I know you were talking about trying to work and get some of those customers back. Were there any concessions that you had to make to bring some of those accounts back in?

Yes, Adam. At this point in time, it's still to come. I mean, I would characterize our Neuro sales force team -- I'm just very, very proud of the work that they did one, to just take care of customers and cases. At our core is making sure we do the right things by patients, and they did a lot of heroic work to make that happen. Secondly, I'd say about 85% of our core customer volume we have adequate supply into. So we're probably talking in the 15% or less range. And really, third quarter, as Jack had commented as well, is that critical window where we're getting all the supply that they need -- and some of those customers moved over to alternate versions of supply. We believe that the clinical data, some of the different feature options that we actually have of different flavors, if you will, of DuraGen, coupled with some promotional work, that we'll be able to bring back a larger percentage of that customer base. But ultimately, we will see. And to your specific point, third quarter is probably the bigger window where some of that promotional effort will take place.

Yes. It's worth just to -- we wanted to obviously mention it in the script, but it's worth hammering home: the third quarter is really an important quarter for us on a lot of fronts. We expect inspections in 2 if not 3 of our warning letter sites; we have an opportunity to drive revenue growth over Q2 if we execute well, especially on the production side. So we have a lot of things that we believe will clarify before we report Q3 or by the time we report Q3. That's why we left the guidance range wide. A lot of this is still very much in train rather than resolved and clarified.

David Lewis from Morgan Stanley.

This is actually Jon Demchick in for David. I just had a, I guess, quick follow-up on I guess the EPS guidance, which you mentioned was pretty wide at the 30% -- or $0.30 versus, I guess, $0.10 is probably the normal range for you guys. And I mean, obviously, a lot of that's with the remediation cost and other spending. But with half of the year left, I was wondering if you'd maybe specifically point to a few of the large dollar issues that could kind of push you more to the top end or the bottom end of the range?

Yes. So the biggest impact, I think, is where we ultimately land with our revenues and the mix of those revenues. So if we deliver in our regenerative medicine products from a reduction point of view, if the Spine trajectory goes where we think it will be on more of a medium- to long-term basis, that will have a disproportionate impact on the bottom line. We also, of course, have some thinking to do about the level of expenses we're going to incur in the second half. If these inspections go well, on the one hand, we expect our, call it, unusual remediation expenses to decline. But we've been keeping other initiatives in check because you can't do everything at once. And we may, in fact, release spending to -- just to work on things that we can make for -- that we believe will make for a better 2014. So between those top line considerations and decisions we've not yet made on expenses because they're sort of dependent on how market share questions resolve and FDA inspections resolve, we've left the range wide so that, frankly, we have the freedom to make those choices in the fall in time to have an impact on 2014.

They're very helpful. Just a quick follow-up, I guess, from the broader restructuring. I mean, last quarter, it sounded like the recall may have an impact on the timing of some of the revenue and cost initiatives that you discussed at your last year Investor Day. And I guess today, it sounded like everything was going more as planned. So I was, I guess, just wondering if you could maybe discuss if the recall has pushed things back a little bit, I guess, specifically in regard to maybe planned distribution consolidation or sourcing opportunities, as those are probably the more near-term opportunities.

So, Jon, I mean, as we communicated in the first quarter, it hasn't changed. I mean, we went into this mode of -- I kind of termed it kind of a surge focus, the focus on the 3 warning letter sites, supply and customers, and we clearly made some trade-offs. And that had probably a 6- to 9-month impact on the breadth of all of our initiatives. Now that being said, those that we could keep chugging along, we did so. So I would say sourcing is a great example of one that we've been able to kind of keep separate, keep focused, and they're well on track. We delayed some of the timing, clearly, of some of our plans when we think about our facilities and took a different look about scope and all the other factors. As you can imagine, if you've got major FDA audits in a given facility, you're planning to do something at that facility one way or the other, you would take a little different time to understand what the ramifications are. And that's kind of where we are. That said, I think that the operations team still made good progress, and we expect later on this year to come back to you to let you know about specific plans of our next steps around more of the operational efficiencies that we are going to bring this year. But the effect, very consistent to what we said, is this: is that as we delayed some expense that we had this year to put it on these remediation-focused efforts, some of those expenses will roll into '14, which will put a little higher burden than we had initially strategically planned for '14. And some of those benefits, because the programs will start a little bit later, will also push out. Hence, why the 6- to 9-month delay from how we looked at the original strategic plan.

[Operator Instructions] We'll move next to Matt Miksic from Piper Jaffray.

I just wanted to just get your sense on where things are in terms of sort of getting back to supply levels as you think about where you thought that you'd be here. I mean, are you on track for the third quarter? I think I remember you saying a few months or several months. Were you slightly behind that mark? Just some color would be helpful.

Yes. I would characterize it as -- we weren't the fastest out of the blocks, but we picked up quite quickly about midway through the sprint. So as we were ramping up our third shift and stuff, we probably didn't come up as fast as we had ultimately hoped to do in Q2. But as we came up to a full level and as we are running right now, I would say we're performing at a higher level than we had expected. So what does that mean? It means that in third quarter, the vast majority of our supply should be addressed for customer needs. However, there will be specific codes that we still believe, in the fourth quarter, we're going to be getting them back to adequate levels. So I feel, actually, where we sit right now, pretty good about our capabilities and our production scenarios in our plants. Now, obviously, that's all predicated on stable operations where we are. We obviously are expecting the FDA to be coming into Puerto Rico this quarter, as Jack commented on. We had put the 8-Ks today, they're in New Jersey currently. We believe that we planned appropriately, meaning that we can do an audit and meet production simultaneously unless something changes on some type of direction or plan, which we don't foresee. But that's how I'm thinking about it. And I think we've thought it through and feel pretty good about where we are at this point based on, obviously, the tough recall we had in the first quarter. I mean, Jack, I don't know if you want to add anything to that?

No. I think that pretty much does it. Third quarter will be important. We expect a fairly significant catch-up in the second half of the year. And if that materializes, we'll finish the year stronger than we had in, obviously, the first half by quite some margin. So that will be nice if we can accomplish it.

Okay. And then on the new shoulder, it does sound very much like you've hit every -- just about ticked every box for this new system in terms of porous, press-fit and convertible flexibility for this reverse system. Can you talk a little bit about what the field -- what you need to do in the field to kind of successfully execute on that and commercialize that? Is this going to be -- are you going to need to expand that field for us? Are you going to -- do you anticipate some sort of spend throughout '14, maybe, to support that?

Yes. So Matt, it's a good question. So to -- first of all, on the Shoulder, I mean, we believe that we've got a good mix of the key concerns or requests that are in the marketplace. And so that was a very important part of this. And leading up to this, as you guys all well know, without having a reverse and having a total shoulder, particularly on this procedure, you really don't have a full offering. And it's very difficult to bring surgeons in that go into the theater with a question mark, will it be a traditional or reverse? So that's a key piece, and obviously that makes us a very viable player with that change. This sales force is a distributor sales force. So keep in mind, our traditional Extremities business is all direct. We made a decision, post the acquisition of Ascension, to keep a distributor base force mainly because that we can bring in deep expertise and not defocus the rest of our Extremities business. So obviously, with a new shoulder, being able to the ramp up our distribution structure and be able to recruit will be a critical part of our ability to expand our share and growth. And as you can imagine, we've already been hard at that and been running hard, but that's also why, when you think about our ramp-up, our timing, some may say, "Gee, 6 months until you get the full production, how does that play out?" A lot of that, as much as anything, is about getting up to the right amount of sets, the investment levels, getting the right distributors online and also the training that's involved in it. So that's kind of the critical next step for us, and I think the team is very focused on it.

We'll hear next from Larry Biegelsen from Wells Fargo.

First, I guess, Pete, I'd be curious to hear from you your thoughts on the DFU pilot study that was published. Just maybe -- I haven't had a chance to read it yet, but maybe if you could give us an update on that and what that means.

Yes. Larry -- and I made a few comments on this. I mean, at the end of the day, obviously, the most important component for us isn't the pilot study. It's the clinical study that we've had ongoing that I commented on. We believe that we're into the kind of final legs here to get the study closed out, and the closeout of that study would be Q4 this year to end of Q1. And really, a part of that is just enrollment speed. And as you guys know, in a lot of these things, August and even September, you have some low points, and we'll see. Optimistically, we could be in Q4, and then more conservatively, Q1. So that's on the study, and that's moving forward. The pilot, what's important about that is -- keep in mind, this is with our IDRT product, which really -- what the company was founded on. It's really known as the premier product for dealing with large burns. When you utilize that product, it is typically in conjunction with an autograft. So you would obviously debride the wound, you would put this in deep wounds. After a certain level of healing, you would actually do an autograft off the patient, somewhere in the body, and then you would put that on top. When you're dealing with diabetic foot ulcers, it's really about, actually, can you put in a matrix that actually doesn't need the autograft on top of it? And there's a lot of factors that go into that. But what the pilot study basically showed is using our product for diabetic foot ulcers for their relative size, without having to put an autograft on top, the wound actually healed closed. And that's obviously a critical component relative to can it be a standalone product and can it be cost effective. This is kind of how we look at the outcome of that study.

Thanks. That's helpful. And then I know on the last call, there was a lot of discussion about the baseline for 2014. Can you guys talk about how we should think about 2014 a little bit given the recall in 2013 from the sales? And also EPS perspective, maybe a little bit of color on expectations for gross margin and the tax rate. I think it may actually step up a little bit in 2013.

Yes, Larry. So I'll have Jack frame that up for you.

Sure. So really, for the same reason that we have a wide range in our guidance this year, we're not quite yet in a position to talk with any kind of precision about 2014. Obviously, we normally give our guidance for the year in February, and we expect to stick to that calendar. But no doubt, we'll have some deeper thoughts on the topic before the end of this year as we prepare our operating plan, but we're not at that point yet. I'll say, our early thoughts on 2014 really haven't changed much to what we indicated on the May call, just as our guidance for 2013 hasn't. So I'll just sort of reiterate or make a couple of points. We expect a stronger half, as we've said, in 2013, but part of that is snapback from the tough first half. And so, we don't think that it makes sense to necessarily draw a straight line from our performance in the back half of 2013 up into 2014. We have to see how some of that unfolds before we're willing to say that. The revenue, though, the full year 2013 results are probably a good place to start, and then grow off of that within our long-term guidance range of 5% to 7%. So rather than trying to jump off the fourth quarter, we suggest you jump off the total 2013 revenue estimates. And then from an expense point of view, we're quite far from being able to give any good guidance on that. But as we intimated, we probably -- because of all the extra things we've had to do this year, we probably pushed off a bunch of the costs around our long-term restructuring initiatives into 2014. And then some of the benefits have essentially drifted into 2015, as we now think about it. So that's about all we can do now. No doubt many of you will have the same question on the October call, and we may have something more to say, although we're going to give our guidance for the year, obviously, in February as we always do.

I would just comment, Larry, the fact is -- and we keep reiterating this stuff, a wide range for this year -- is the fact that with 3 sites that we believe we're going to have inspections completed on, that gives a wide range of views. And obviously, that drives a lot of subsequent decisions about investment or cost. As they go well, there are key items that we clearly want to accelerate, as Jack commented on, that really are about changing the motif of the company for the long run and really changing the margin and growth trajectories for the long run. So we're still quite aggressively focused on being able to make as much as this happen as we can this year, really, going into next year. It's critical for how we laid out the overall strategy. But that being said, I think our Extremities underlying business, we believe, is quite strong, and we are excited about the new products coming in. Neuro, as we've mentioned before, really, without the recall, we were on track for achieving our overall growth plans, and that underlying market is strong. Instruments, we've had some weakness in our alt site area. We've got some strength in acute care. But as I had mentioned in the comments, a larger chunk of it was specifically tied to -- we actually got rid of some lower-margin products within our portfolio, which will have a positive effect, obviously, as we go forward. Spine has been a little bit more of a challenge for us. We think we've got a handle on some of the key things that we need to do. And obviously, Private Label was directly affected by the recall, which is going to be coming back here as we get our supply addressed.

We'll hear next from Jayson Bedford from Raymond James.

This is Mike calling in for Jason. Just first, on the Extremities growth, I know you touched on it briefly but -- and I know it was a difficult comp. But can you elaborate a little bit more on the source of the slowdown? And how comfortable are you that you can reaccelerate that growth? I know the guidance kind of implies a decent ramp in the second half.

Yes, let me comment, and then I'll have Jack comment. I would say the first point is, is that for us, the Extremities achieved their plan. And I guess I would say, we probably didn't do as effective of a job maybe communicating or telegraphing a little bit more that we had a much more lumpier first half than we actually did. But again, the point on this one was, if you recall back last year, we were actually having a lot of remediation work going on in our Plainsboro facility. We really hadn't made much Skin product at all in late Q4 into Q1. And the question at that point in time is, "What are you going to be able to get out?" And we gave a range, could be an incremental $2 million to $3 million of Skin volume, things of that nature, and we achieved those numbers. And that all shipped within Q2. The other aspect was we had bought Ascension, and you may recall that was all a distributed-based product structure, and we were integrating that into our direct sales force. That event was in late Q4 into Q1, and we clearly had some challenges in Q1 with that integration. We were quite successful with all the training and ramp-up, and Q2 was a very strong Hardware ramp. And so when you add those 2 together, that's really what it is. So when I look at the second half, I look at our opportunities and our run rates, I actually feel quite confident in what we're projecting relative to our growth rate for the rest of the year. I mean, Jack...

Yes, I mean, I think, just to really hammer the point home, the Extremities business did exactly what it was supposed to do this quarter. The only thing we failed to do was telegraph to you guys on the Q1 call that, "Hey, by the way, we're going to have this tight comp in Q2, so be sure to model that in." It was up, actually, Q2 over Q1 2013, sequentially, by something like 7%. I mean it had a really good quarter this quarter. It will have a strong second half, barring some change that we can't see right now. So we feel very good about the business. It's not a slowdown. It's a math problem.

That's helpful. And then just as a follow-up. When you look at the Añasco and maybe the Plainsboro plant, I'm not sure, are there a still decent amount consultants there in the plants? What's -- if so, what's the timeline for them leaving the plants? And does that get backed out of your adjusted EPS numbers?

Yes, I mean, I would just say, at a high level, less in Plainsboro, more in Puerto Rico. And that's a more so fact of where are we relative to where we need to be ready. So obviously, we believe we're ready and need to be where we are in New Jersey, so it's primarily all our folks. In Puerto Rico, we'll be coming upon the 6-month window of when we see the letter here in mid- to late August. We still have more work to do, but we've made a lot of good progress. We feel quite good about our progress, and that has a significant amount of outside help associated with it. Andover has a reasonable amount of outside help tied to it as well. And as we get to closure and completion, obviously, our goal in all of these are -- is making sure that it's full Integra employees that kind of own all these items. But to surge quickly to get a lot of items closed, that's how we've ramped up some of our expenses. And so Puerto Rico still has a large amount of spend associated with outside help.

Okay, great. And just on the -- is that backed out of earnings on the adjusted basis?

Yes. It's -- we adjusted out. Yes. But to be clear, just because we've now been saying this for -- we actually have extra spend all over the company that we're not backing out. What we've done, essentially, is we're backing out the specific warning letter plants, but we don't expect, company wide, to have this kind of level of quality spend long term at this level of revenues and so forth. So I'm not going to get in the business of quantifying that, but we do expect that to be part of the margin improvement gain long term.

[Operator Instructions] We'll move to David Toung from Argus Research.

You talked about backorders in Orthobiologics. Now is that -- and then you talked about snapback. So should we be looking for some stronger growth in Orthobiologics because you're on backorder and it sounds that the underlying demand is pretty good there?

So I would frame up, David, as this way: when Jack uses the snapback, it's primarily heavily tied to what we look at in the Neuro business because of the majority of the recall. On the Orthobiologics side, as I commented, it's not associated with the recall. We made a specific decision to get items done in our collagen plants pre-FDA. We wanted to get some things done on a raw material used in that product. We went after it aggressively. I think we were quite successful at getting the items we needed to get done. The impact was we disrupted supply, which clearly slowed down some of our overall ability to ship. Now that is addressed, and we'll be ramping up for Q3. So the short answer is yes, we expect to have better results coming out of Orthobiologics, but I don't see that this is a major snapback. I see that we'd be able to ramp back up to the levels that we were expecting.

Sure. And shifting over to Spine, you talked about the execution issues as part of the issues. So where are you in terms of getting the right people, distributors? Is there still more to be done, or are you confident now you've done what you need to do and the execution should be a bit better going forward? I mean, particularly, some of the competitors have already reported, and as you've noted, the market seems to be coming back in Spine. And it's probably, as far as timing, it sounds like it's rather critical to be catching up to the market.

Yes. Look, I guess the first part is, is that -- we don't necessarily see the market doing any major performance. I would say the fact is, is that we still see it being potentially stable from our perspective, pricing still being down a few points in that area. Now coming off of where it was maybe last year, that's clearly a little bit better. And look, to your point, the comments that I made around execution fall into 2 buckets: One I just referenced, which is decisions we made that ultimately didn't allow us to get the right supplies of Orthobiologics out. That was a portion. But the other area is our ability, as we converted out some inefficient distributors and then our ability to bring in new distributors, how we do that, we went through some changes. We've got, I believe, the right people in place now to do that. We've been actually successful here at the end of the quarter to bring on a good chunk of new distribution. And that's a big focus for the team is to be able to expand our reach. And I think I might have mentioned before that we probably touch less than half of the overall Orthopedics surgeons doing spine work in the U.S. So big part of our growth opportunity is to be able to increase our distribution. We've got a nice product line offering. We've got the new products coming out there. In the biologics space as well, we think we've got a really nice scenario with some new products as well coming out next year. So look, sometimes these things happen on the execution side. We've identified them, we'll own up to them, and I believe that we've got them addressed.

Just to elaborate slightly so that people can get the U.S. Spine & Other number right, and I think this is a more -- possibly the final point Steve and Chris asked at the beginning of the call. About -- in that segment that 60% of the decline was Private Label, that 40% was Spine. So a big chunk of it was Private Label. And the reason for that had to do with supply issues from Añasco, primarily. Our Private Label customers go up and down, and we did flag one. But long term, Private Label is a good business, and it's going to be just very lumpy this year because it's such a function of supply. And so that's added color if you look at that segment number.

Imron Zafar from Jefferies.

First, a broad question. Any notable changes you're seeing in any of your end markets or geographies in terms of capital spending, procedure volumes, pricing, more of those macro factors?

I would say, overall, we haven't seen any significant shifts one way or the other. I always make this caveat. I mean, we are diverse, but relative to scope and scale of a lot of our other competitors, we just don't have the same reach and we don't see as much. However, our capital sales, there wasn't any major changes there, roughly flat. For the most part, kind of in line with how we were expecting, and there's a lot of puts and takes in our world, too, between new products and things in and out in that space. We do say -- and this is -- we hear more customers, obviously, really trying to understand the impact of how health care reform is going to affect them. And so nothing more specific than being cautious to take a look at where they place their bets and where they put their money. But how have we seen that? We really haven't seen any fundamental changes in the U.S. and/or around the world at this point in time. I would say for us, from a Europe standpoint, there's a slightly more increased view of, I would say, optimism just around -- we're seeing more stability and more consistency in how the sales are ramping up, but it's still not anything of how the market was there 5 years ago.

Okay. And then in terms of M&A, there's been a little bit of a lull there. Is that a function of focusing on the FDA issues? Is it just disciplined due diligence? What's the latest thinking on acquisitions?

Yes, let me comment, and I'll have Jack jump in on it. Look, it's probably a little bit of both. One is, is that obviously, as many things as we've got going on, we've been very focused to make sure that if we do enter into a deal, it's the right deal that we can digest strategically as the right fit and makes sense just based on everything we've got going on. Now that being said, I think Jack can comment on it, we think we've probably got a funnel as vibrant, as full as we've ever had with the company. There's a lot of exciting different plays and opportunities. We spent a good chunk of time taking a look at it. And there's still great opportunities for us yet even before the year is over to do the right type of deal that would plug into things. But no, we are spending a reasonable amount of my personal time, Jack's time as well, looking at some of the good opportunities that are out in the marketplace. So Jack, comment?

Yes. I just think that all of that is true, and I would add, we've gone before -- in my long tenure here, we've gone 1.5 years, 2 years without doing significant deals before. I'd say some of the secret to our pretty good track record here is that we don't push transactions because we're trying to meet some external expectations of deal pace or anything like that. We really tell the entire organization, "Look, it's far better not to do a deal than to do a bad deal." And so we have maintained our traditional pricing discipline and everything else. But there is a lot of opportunities out there, and I think that at some point, the stars will align and we'll have a good transaction that you guys will like.

Okay. And then just lastly, any inquiries, formal or informal, from the OIG in terms of your Spine business?

No.

At this time, there are no further questions in the queue. I'd like to turn the conference back over to the speakers for any additional comments.

Thank you for joining the call, and we look forward to speaking with you in October.