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 call over to Ms. Angela Steinway, Head of Investor Relations. Please go ahead.

Thank you, Lauren. Good morning and thank you for joining the Integra LifeSciences second quarter 2015 earnings results conference call. Joining me today are Pete Arduini, President and Chief Executive Officer; and Glenn Coleman, Chief Financial Officer. Earlier this morning, we issued a press release announcing our second quarter 2015 financial results and updated 2015 guidance. We also posted a presentation on our website which we will reference during the call today. You can find this presentation at www.Integralife.com under Investors, Events and Presentations in a file named Second quarter Earnings Call Presentation. If you would open that file up to slide 2, please reference our safe harbor statement covering the forward-looking statements we will make on today's call. As well, please reference the reconciliations of non-GAAP financial measures at the end of the presentation, beginning on slide 17. Turning to slide 3, I will point out a few nuances in our reporting and guidance for the call today. The SeaSpine spinoff was completed on July 1, 2015 and therefore, beginning with our third-quarter results, Integra's financials will be reported on a continuing operations basis excluding the Spine business for the full year, since all historical financial results for this business segment will be reclassified and reported in discontinued operations. All of our forward-looking statements in discussion of Integra's guidance today will therefore reflect our expectations for continuing operations. For informational purposes, we have published unaudited reconciliations of our historical financial results for continuing operations for the years 2012 through 2014 and for the quarters of 2014 and the first half of 2015. These reconciliations can be found on our website in the same location as the earnings call presentation, titled Historical Financial Results Continuing Operations. As a reminder, our second quarter 2015 financial results include the performance of our Spine business and are comparable to the information and guidance for our business and operations as we discussed on our first-quarter earnings call in April. And now I will turn the call over to Pete.

Thank you Angela and good morning everyone. Turning to slide 4 in the deck, before Glenn provides details of our financial results, I'd like to comment on a few of the highlights from the second quarter. Our reported sales increased 5.5% over the prior year to $244.1 million and we marked our third consecutive quarter with organic growth over 5%. Adjusting our second quarter results to exclude Spine on a continuing operations basis, our organic sales growth was 7.1%. In fact, our first-half organic sales growth without Spine was roughly 8% which positions us for a more sustainable quarterly progression through the second half of the year, enabling 6% organic growth for the full year. In the second quarter, we experienced strong growth in both specialty surgical solutions and orthopedics and tissue technologies. Regenerative product sales including dural repair, open wound and nerve were again in the primary drivers of organic growth. Post spin, with the inclusion of TEI, our higher-margin regenerative product portfolio is expected to comprise about 40% of our total company revenues. This is a fundamental shift in the composition of Integra's product portfolio towards biologics and regenerative technologies versus a larger mix of medical supplies. International sales increased 17% in the quarter on a constant currency basis, driven by growth in Europe and China and reflects both the sales channel expansion from MicroFrance's base of business in Europe and our commercial infrastructure investments made over the past few years. Below the top line, our profitability margins in the second quarter once again improved significantly versus the prior year and our adjusted earnings and cash flow conversion remain strong. Please turn to slide 5 in the deck where I will review some of the second quarter's business accomplishments relative to our long-term strategy. Last month, we announced…

Thanks, Pete and good morning everyone. Second quarter sales of $244.1 million or 5.5% growth over the prior year, came in at the higher end of the guidance range we provided on our first-quarter earnings call. Our organic sales growth in the second quarter was 5.1%, in line with our guidance. In the second quarter, our adjusted EBITDA margin was 20.7%, an improvement of 190 basis points over the prior-year second quarter. We also delivered operating cash flow in the second quarter of $18.1 million, resulting in a free cash flow conversion for the trailing 12 months of 54%. Overall, I would characterize the second quarter financial results as slightly better than the guidance we provide in April and we're on track to have a strong year in 2015. Before discussing the financial results in more detail, I'd like to draw your attention to slide 3 which provides a note regarding the reporting of our continuing operations results and non-GAAP financial measures. Now, moving on to our segment revenue performance in the second quarter, please refer to slide 6. Sales in our specialty surgical solutions segment were $146.7 million in the second quarter of 2015, up 6.7% from the second quarter of 2014 and reflect the increased demand for our products in both the U.S. and international markets. Global sales of our dural repair products increased in line with the overall segment, reflecting stable utilization of our products. Precision tools and instrument sales increased low single digits, excluding MicroFrance. Higher sales in surgical instruments and cranial stabilization drove the majority of this increase. MicroFrance is performing right in line with our expectations and is expanding our reach in markets outside the U.S.. Sales in neural critical care and tissue ablation together were up slightly on a constant currency basis. Given…

Thanks, Glenn. With the first half of 2015 now behind us, we're pleased with the significant progress that we've made toward reaching our full year objectives. On slide 16, we provide an update to our key priorities for the year. We completed the spinoff of SeaSpine this month ahead of schedule and I'd like to acknowledge all of the work that the teams of both at Integra and SeaSpine did to make this happen. Last week, we announced the closing of the TEI acquisition. The addition of TEI exemplifies our M&A strategy. First, the acquisition immediately expands our commercial organization and key focus areas. Two, TEI adds a differentiated technology platform and a portfolio of established, high-margin regenerative products which we can build upon. And three, the deal enables increased scale in burn and wound markets as well as adjacent markets in plastic and reconstructive surgery. The complementary nature of TEI's regenerative product technology and the addition of their commercial sales capabilities, will fuel our product pipeline and accelerate our long-term growth, positioning Integra to be a leader in wound care and regenerative space. Looking forward, TEI brings a product line with gross margin substantially above the company average, with strong cash generation and is positioned to grow revenue in the high single digits. As I mentioned earlier, our DFU product is on track for a mid-2016 launch and our capabilities were enhanced with the addition of TEI. For example, we gained an established sales team, marketing and reimbursement talent, as well as a portfolio of products for the outpatient DFU setting with existing reimbursement. Organically, we continue to make progress with our expansion of our commercial infrastructure. In China, we're starting to see benefits from new distributors added earlier this year. Domestically, we're excited about the addition of 20…

[Operator Instructions]. We will take our first question from Matthew O'Brien with Piper Jaffray.

I was hoping to start off a little bit on the dural repair side. In looking at the comparison from last year, I know it was fairly steep and I think the growth rate in the quarter was a little bit slower than I was expecting. I'm just curious if that was more of a comp issue, if it was market related or if you're seeing any competitive pressure.

Matt, I will comment. I can have Glenn add some other color as well. I think pretty much in line with where we thought it was going to be. If you recall back in the first quarter when we did the call, we talked about we had a quite a high growth rate quarter of the year. We saw that moderating some and again, put moderating in perspective -- above market growth, market growing at 2% to 4%. At that point in time, we were growing significantly higher in the high teens. And so yes, dural repair, we still feel like we're in a very good position to be growing and taking share but growing more at a slightly above market level at this point in time.

I would had just a couple things to Pete's comments. Our dural repair franchise this quarter grew in line with the overall segment, so it's in that mid to even higher single-digit range. DuraGen had a really strong quarter in the high single digits, DuraSeal had a record quarter for us in terms of sales volumes. So the overall numbers that we see were pretty positive and the fact gave us the confidence to raise the low end of our guidance range for specialty surgical for the year. So we see this as a franchise that is continuing to outperform the market growth rates that are out there, so we're pretty pleased with the performance overall.

And as my follow-up on the foot and ankle side of things, I know it's a smaller piece of the business at this point, but it is a very rapid growth area. Can you talk about the investments that I think you said you just made there in the first half and then is it really -- the need for your total ankle system to get that business really moving in line with the mid-teens growth we're seeing out of that category?

Look, I would say if you look at our upper, we had a very strong performance in upper. A lot of that was driven by new products, so shoulder, wrist, some of the products that we have coming out within the hand. If you look at lower, we haven't had as big of a launch of new products. We've had some refreshing of established products, but we haven't clearly had some bigger launches which we're planning to come forward. And to your point, the ankle is one of those that will move the needle quite a bit mainly because of a larger ASP and we believe it will be a very competitive product. So yes, that will be an item to bring in we believe new customers as well as really start driving some growth within the segment. That being said, we're really investing to refresh across the board our lower forefoot mid and hind foot portfolio. We're starting to see some forefoot growth associated with the acquisition of Metasurg and some of the work that we've done. But I would say mid and hind foot we're not where we need to be yet. We've also added some additional resources and we think that the added focus particularly in the lower area's going to pay benefits in the subsequent quarters here coming forward.

And just to add to Pete's comments, as I put in my prepared remarks, we just completed this transition of the products to our direct sales force and our direct sales channel for Metasurg. So we think that will be an incremental growth in the second half of the year moving forward as well. So I think Metasurg will be a more important contributor to our business moving forward.

Our next question comes from Chris Pasquale with JPMorgan.

Just follow up on the question about the ankle, can you just give us an update on the timing there and is that the thing where you're going to be ready to hit the ground running early in the launch or is it going to be a gradual process?

So Chris, to my point when I commented about a controlled market release at the end of this year, controlled market release for us will be a smaller set of users similar to how we did with our shoulder. I would say think about the ramp that way. We have a pretty strict discipline about how we think about a smaller set of users, make sure we've got manufacturing supply, all of the instruments that are fully meeting a broader spectrum of users. And then will start to ramp up. And so yes, I think through Q1 of next year, it's still a controlled market. Things go well into Q2, Q3, we start really ramping up a significant amount of the new sets and training of the reps.

On the upper side, do you see opportunities as we go through some of these mergers with the larger players to really boost that business and pick up some distribution?

I think the short answer is yes. I would say we feel pretty good about where we're positioned with our upper portfolio right now. As I mentioned, the product like the wrist is actually doing extremely well. It's a niche product for us, but it also brings in interesting new surgeons into the fold that may not have looked at us before. Our shoulder, we believe we've really hit it with the design now, we've taken the appropriate time, we've tweaked a lot of instruments. And now really in this quarter going into third quarter's where we're ramping up capital on the new sets. And so we expect to see some broader expansion and with that is we will need more distribution. And as you know, that is a distributor based structure, so where we can bring new distribution in because they're left without a home or they see a better opportunity with Integra, we're keenly focused on that with changes in the market. And we do believe that it's not just about our current product. It's really about our vision and our pipeline for that product. And we believe between glenoid solutions as well as technologies such as pyrocarbon, we're going to have a pretty robust future pipeline for the shoulder product as well. So I think in the long run, yes we will be able to pick up some high-quality distribution to help us grow that business.

Our next question comes from Imron Zafar with Jefferies.

I wanted to ask about, first about TEI. Looks like your u[dated guidance implies that sales for that operation are going to be perhaps down slightly or flattish for the year versus 2014. I just wonder why, is that factoring some near-term disruption, is that just the lumpiness of the business? If you could just clarify that, that would be helpful.

Imron, let me back up and say we're not signaling it is going be down. Let me maybe give a little bit more color on how we think about the TEI business and just clarify some numbers. In 2013, that business generated about $65 million in overall revenues. In 2014, it was down slightly, about 2% roughly, about $63.5 million and we see that in 2015 performing at mid to high single digits. In fact, first half of 2015 did a little bit better than that. The downswing that they had in 2014 really was associated with a couple of specific internal items. As you saw, we denoted that we purchased TEI Bioscience TEI and TEI Medical. Prior to 2104, it was one TEI organization and that's when some of the changes were taking place splitting the organization for focus on wound separately. And some of those disruptions clearly had an impact on the market. I also think with some of the ramp-up of the outpatient reimbursement work took a little bit longer for them. That's all in place now, but that's really why some of the disruption took place in 2014. But no, we feel quite good. Again as I mentioned, first half is doing a little bit better than the mid to high single digits growth and we would expect this year to be on track through mid to high single digits growth for us in our hands. Glenn, you might want to add some other color.

One other thing to consider, just keep in mind we closed the acquisition July 17, so essentially we have a little over five months of revenue in our guidance.

Right. And then Glenn, I just wonder if you're willing at this point to be a little bit more specific on what type of accretion we should expect from the deal in 2016 in terms of earnings?

Again, we're not going to provide any color on 2016 yet. We will give that more as we get closer to the investor day relative to our thinking on some of that. But again, what we've said is we expect the deal to be slightly accretive in the first 12 months post close. And for this year again, we expect it to be neutral to slightly accretive including the effects of any financing that we're thinking about in the second half of the year. And that's the way we think about the TEI accretion for both 2015 and the first 12 months.

Okay and then just lastly on the DFU launch, I know you said you don't want to talk about 2016 guidance specifically. But just directionally and quarter-to-quarter cadence, can you just talk about what the margin impact is going to be of that launch in terms of ramping up supply ahead of the launch and initial launch in the back half in 2016?

We're not ready to give specifics on it, but again just to remind you, we feel quite good about a launch commencing in mid-2016. We will now have a sales force already in place with TEI that's already selling an already approved product that can be trained in advance. So once certain max even have approval come on, we can actually turn on certain parts of the country selectively as that's ready. Relative to a ramp-up, we don't necessarily see a significant ramp-up in product cost associated with getting the plant ready. And again, this comes back to the fact that yes, we will have a distinct product and packaging structure, but it's all leveraged under our common manufacturing piece that we have in our collagen manufacturing facility. So that's a little bit more color on it and I know there's a lot of interest in this area and this will be one of the broader topics we discuss at our investor day on November 12.

Jayson Bedford, Raymond James & Associates.

Couple of questions, the regenerative medicine piece, you've had a couple quarters of high teens growth. Can you just give us a little bit more detail in terms of what's driving the strength there and what's changed over the last six to nine months?

Yes look, I will give some comments on it. So again, when we referred to regenerative, it is across both specialty surgical and orthopedics and tissue technology. So if you think about DuraSeal regenerative products, if you think about in our orthopedic and tissue area, our nerve products, our tendon repair product as well as our broad spectrum of skin products that can be used in a host of areas. I think in short, new products and increased focus have had the biggest impact. So if you think about the impacts of DuraSeal coming new product into the portfolio and then products such as DuraGen Secure and having a refresh discussion point on dural repair with multiple products, that impact has clearly had a very positive impact growing our overall dural repair franchise. Likewise on the wound and skin side, having a product like our thin skin product that is really giving us I think a real viable solution in the second degree burn market, coupled with some different versions in different sizes within our traditional market area, it's given again more discussion points and brought new clinicians into the fold. That being said, on both sides of that, both domestically and internationally, we've added more resources. Some of the money that we were spending on plants and quality items and such, we've taken some of that as we commented on invested that back into increase channel expansion. You may recall we talked about 70 plus resources this year. A large portion of those have already been placed internationally and the majority of those have then stepped into OTT roles primarily selling our regenerative products.

Okay and I wasn't specifically referring to the OTT bucket which is the faster growing bucket at least over the first couple of quarters. And it sounds like that's largely the introduction of thin skin and the additional resources. Is that fair?

Yes, it's thin skin, it's also increased better supply within the whole pipeline. I think that consistency has been a really important part of it which is driving more confidence for our sales team and also customers. And then third is definitely an increase within channel both direct selling reps and what we call specialists that are deep regenerative experts that can help convert customers.

And just as a quick follow-up, neuro critical care tissue ablation obviously slowed a bit here. What are your options to improve growth in that franchise?

Jayson, I think it's right in line with what we expected. I think the tissue ablation business is about where we had thought it would be. There are couple of components to that, the actual disposables in the capital. And we're seeing good ongoing lift within the capital which means that the disposable business will follow in due time. I think on the monitoring side of things, it's following the curve that we expected. If you remember we came out with new monitors a few years ago. It's purely a replacement cycle -- we still have quite a few to replace at good profit, but it's not anything to the same level it was at the end of last year coming into Q1. So we're seeing a slowdown off the curve on the monitors. But I would expect that our tissue ablation products as we come into the second half of the year will continue to perform in the range that we had thought. So pretty much in line but we thought would play out.

Our next question comes from Larry Biegelsen with Wells Fargo.

Let me start with the guidance for the second half. Organic growth I think you guided to 4% to 6% in Q3. The implied organic growth based on what you did in the first half, the implied guidance for Q4 by our math is about 3%. So I'm just curious why the second-half organic guidance is below the 5% to 7% goal you had. It looks like it's being driven by specialty surgery, it looks like the implied second-half guidance for that is relatively flat. So Glenn, I don't know if my math is correct or close, but if you can talk a little bit about that, that would be helpful. Thanks.

Your math is right, it's how we're thinking about it as well. As I mentioned, 4% to 6% organic growth for Q3, something a little bit south of that in Q4, so agree with your math. We had mentioned earlier in the year that we expected to have a more linear year in 2015 versus 2014. And so we're starting to see that in the second half of the year. I would remind you that the second half versus the first half we're seeing some nice growth from a half-to-half perspective, but if you remember last year in the fourth quarter, we had a record quarter. We had our largest quarter ever, had a number of tenders internationally that pushed out from the second and third quarter into the fourth quarter. Had some new product launches that drove a lot of the revenue growth. So coming off a tough comparable quarter in Q4 2014 to 2015 is what's driving that, but again I would remind you that for the full year, we're raising our organic growth rate to 6% which is right in line with the midpoint of our long-term target. So we feel really good about it. It's just better linearity in 2015 versus 2014.

Pete, if you're on a decelerated trend in 2015 here, what gives you the confidence you can do the 5% to 7% in 2016?

I think Larry, when we take a look on the outlook, it really comes down to the investments that we've made within channel and it comes with the new products that are coming out. I look at it and our shoulder continued to accelerate, our skin portfolio beginning to accelerate. The synergies that we believe we're going to see and selling opportunity's between TEI and the Integra portfolio. Just like we saw with DuraSeal and DuraGen. A lot of the DuraGen growth is driven by having a good discussion with the DuraSeal user that may not be using DuraGen and that's created some interesting growth. Our confidence that we can continue to grow in that range I believe is quite high associated with the things we have been doing, increase channel focus and new products.

So I just think Q4 was an abnormality and if you remember back, we had our Q3 discussions last year. Our Q3 was down, it was a little bit lighter than we had expected, there were some big tenders. And it really did all push within again, as Glenn said, beyond since I've been here the highest number that we've ever had within a given quarter. So I view this as a good thing. I view that our predictability and ability to achieve our second half, we've got good line insight to that to what we need to do. But again, that's a different point in our longer-term outlook to say can we go 5% to 7% which I feel quite strongly about based on our pipeline and our channel work that we've implemented.

Last for me, I apologize if I missed this, did you give an update on the timing with the DFU publication? Thanks for taking the questions.

I gave some highlights to it, Larry, but we didn't give specifics. We announced that we've been accepted into a well-known wound journal and that hopefully here in the next few months, we will be able to give some more specifics, some of the nuances of how that plays out. We will give obviously details of the journal and the month of publication. And then we're hoping that we can also then give some more information of when there might actually be broader public presentation related to the data as well. But we feel we're on track to what we communicated for. At this point in time, my estimations are like a late Q3 window similar to what we said in the past.

[Operator Instructions]. Our next question comes from Steven Lichtman with Oppenheimer & company.

Pete, on international you sounded encouraged on acceleration there. Can you talk a little bit more your efforts there, where are you on the buildout you've been looking to do? You mentioned China, what are the other key areas you're looking at as significant opportunities for you guys?

If you were to say international as a whole is where your buildout, we're probably about halfway there. So there's still a lot of territory to reach and to move towards. But the areas that we have focused on such as China, some of our work that we've put into Japan. And I would also say in Western Europe, again not traditionally viewed as a growth market but based on our share position and particular product lines, we've got lots of area to grow. So the past few years in China is probably a very good example of where we actually changed our whole distribution structure from one common distributor to actually having a distribution partner who helps manage our logistics, to separate selling distributor entities that are flattened out, to our own commercial office and registration capabilities in China. And then new products that have been registered that are coming out and the result is we're starting to see some very good higher double-digit returns out of those markets. At the same time, just to give a different view, say in Western Europe with the acquisition of MicroFrance, it gave us enough of a platform where we've never had direct precision tools and instruments capabilities to now go direct in certain markets. And we're starting to see some of the benefits of that and the ability not only to sell the products that we acquired, but bring our legacy products into that portfolio that were never distributed there. So I think some good progress there. I would say Latin America, we're just starting to get some broader traction, taking a look at how we maximize our distributor base, how we bring more products into the portfolio. We actually have some new registrations that are beginning to hit and new things coming out. And I think Dan and the team have done a nice job of focusing. We really focused on key neuro surgical products such as CU.S.A and our DuraGen, DuraSeal portfolio. And we haven't necessarily had the largest focus on our regenerative skin portfolio over the years. Some of that's related to challenges with registration, but we've made some good progress there. We put some direct capabilities in certain markets and also expanded our distributor capabilities there. So those are the items that we put in place and it's been a little bit lumpy over the last few years. I we suspect that will still have a little bit of that on a go forward basis, but the trend's definitely upward and a positive direction.

Follow-up on another effort, enterprise selling, where are you in building that effort out? And any anecdotal feedback on how that's perhaps benefiting you or expected to benefit you?

Yes, so we're roughly about where we need to be from feet on the street now having regions in the United States. It's a U.S.-focused venture, so regions of the U.S. with experienced IDN and GPO sales executives that know how to call on the executive suite, know how to negotiate and bring together a broader deal for the company, we have the team in place now. Last year, we had a partial team, so we have a VA DOD leader and we have leaders now that interact with all the major GPOs and our major IDNs around the country. We have had some pretty nice wins. It's resulted first into some different better ways to think about our GPO relationships, but I would say we're now starting to see some bigger integrated delivery network offerings. And hopefully here over the second half we will be able to talk about some of the progress and potential successes that we've got coming there. But we see this as a really important ongoing capability for us in a world where there is a lot of companies that are gaining scale. Our ability to have scale and be quite relative in the businesses we play in such as skin and wound and specialty surgical and extremities and then where customer might want to look at a bundled offering or may want to take a look at a broader contract for a 10,15 hospital system, we will have as good capabilities as any of the larger companies and that's one of the goals that we laid out for ourselves.

It appears there are no further questions at this time. I would like to turn the conference back to Peter Arduini for any closing or additional remarks.

Thank you all for attending the call and your questions today. I would also like to take a couple of minutes to reiterate a couple points from the call. First, with the first half of 2015 behind us, we've completed both the successful spinoff of the Spine business and the acquisition of TEI and we're head of our original financial targets and on track to our key priorities. Secondly, on a continuing operations basis that is excluding Spine, our organic growth rate has been at or above our long-term targets for three quarters now and is on track for 6% in 2015. We expect our increase in investments in the second half of 2015 in areas such as DFU and our R&D pipeline which we believe will drive topline growth, help us achieve scale and also set us up for success in 2016. And lastly, we're reiterating our full year 2015 financial expectations on our base business and have provided updated financial guidance on a continuing operations basis toward 2015. If you look, the company is at a really important inflection point in our strategy and we're very pleased with our progress. Thanks again for listening and we look forward to speaking with all of you in the near future.

Thank you, good day.