Hello and welcome to the Integra LifeScience Third Quarter 2022 Financial Results. My name is Caroline and I’ll be your co-ordinator for today’s event. Please note this call is being recorded. For the duration of the call your lines will be on listen-only. However, you’ll have the opportunity to ask for questions at the end of the call. [Operator Instructions] I will now hand over the call to your host Chris Ward, Senior Director, Investor Relations to begin today’s conference. Thank you.

Thank you, Caroline. Good morning and thank you for joining Integra LifeSciences third quarter 2022 earnings conference call. Joining me on the call are Jan De Witte, President and Chief Executive Officer, Carrie Anderson, Chief Financial Officer. Earlier today, we issued a press release announcing our third quarter 2022 financial results. The release and corresponding earnings presentation, which we will feature during the call, are available at integralife.com under Investors, Events & Presentations and the file named Third Quarter 2022 Earnings Call Presentation. Before we begin, I would like to remind you that many of the statements made during this call may be considered forward-looking statements. Factors that could cause actual results to differ materially are discussed in the Company' Exchange Act Report filed with the SEC and in the release. Also, in our prepared remarks, we'll make reference to both reported and organic revenue growth. Organic revenue growth excludes the effects of foreign currency; acquisitions, divestitures, as well as discontinued products. Unless otherwise stated, all disaggregated and franchise-level reporting revenue growth rates are based on organic performance. And lastly, our comments today will include certain non-GAAP financial measures. Reconciliations of any non-GAAP financial measures can be found in today's press release, which is an exhibit to Integra's current report on Form 8-K filed today with the SEC. And with that, I will turn the call over to Jan.

Thank you, Chris. And good morning everyone. Let me start by reviewing our third quarter and year-to-date business highlights on slide four. We'll come back to Integra’s performance over the past nine months. We started the year strong the second quarter building nicely from our first quarter momentum. And despite choppy waters in the macro environment and disruptions within our supply chain, we capitalized on the steady recovery of procedures in our markets, while protecting our profitability in an inflationary environment. With the third quarter, we continue to see recovery or procedure volumes leading to solid growth across most of our product portfolio. At the same time we largely contained the impact of legal challenges, such as increased foreign exchange, headwinds, and continuing supply challenges. We're also reacting decisively to minimize [Technical Difficulty] of 3.5% and absorbing the impact of the recall of CereLink in the quarter. For a bit more color [Technical Difficulty] in the third quarter of just over 5% for the remainder of the portfolio slightly above our performance to the first half of 2022. I'll provide an update on the CereLink recall shortly. Overall, I'm pleased with our sales performance in the quarter. We continue to see solid recovery in our markets and our diverse portfolio gives us confidence in our ability to grow the current challenges and into the future. As expected supply challenges and elevated back orders have continued through the third quarter. And we anticipate these higher levels will remain through the remainder of 2022 with most of the impact felt in our CSS business. We are deploying mitigation strategies to reduce the backorder levels to keep up with strong customer demand, such as increasing raw materials safety stocks on constrained commodities, packing materials, metals and electronics, and qualifying and validating alternative sources…

Thanks, Jan. And good morning, everyone. I'll start with a brief summary of our quarter financial highlights on slide seven. Third quarter total revenues were $385 million, approximately flat on a reported basis, inclusive of a TWC divestiture impact of $3 million and a $12 million impact due to unfavorable foreign exchange compared to last year, representing an approximate 300 basis point negative impact to reported growth. The U.S. dollar further strengthened in the quarter creating an additional 40 basis points of FX headwinds compared to our guidance. Excluding the impact of FX and discontinued and divested products, we delivered 3.5% organic growth in the quarter. As Jan mentioned, excluding CereLink organic growth across the remainder of the portfolio was just over 5% which speaks to the diversity of our portfolio and continues to give us confidence in our long term growth expectations as we move past the current macro challenges, and target to bring CereLink back to market in the first half of next year. In Q3, we recorded a $1.5 million provision for CereLink product returns as a reduction in net revenue. This was much lower than initially expected for the quarter as we evaluated customer feedback, including refund request and the timing to return the product to market. We view this is very positive as it demonstrates the success of our efforts in assisting our customers in minimizing the disruption in their care for patients through our loaner program, and even more importantly, it showcases that our customers see differentiation with the CereLink product and are willing to wait for its return. Two highlights in the quarter where tissue technologies with their organic growth above 7% and International organic growth of 4.6% despite the impact CereLink recall. Adjusted EBITDA margin for the quarter was up 30 basis…

Thank you, Carrie. Let's turn to slide 14 our final slide. Our year-to-date organic growth of 4.6% including the CereLink headwinds, and approximately 5% excluding CereLink reflects the diversity of our portfolio, our team's ability to navigate the current unique challenges. In addition to delivering our 2022 commitments, we have remained focused on strengthening our key growth catalysts to build towards our long term organic growth target to 7%. In our international business we have delivered just under 6% organic growth year-to-date. As we plan for 2023 and beyond we have identified investment opportunities in international markets based on the roadmaps we developed earlier this year. With an experienced international commercial leader like Harvinder joining the executive leadership team, we’re further building our capabilities to capture incremental international opportunities across our business segments. CereLink are working aggressively to limit the impact of the recall on the operations of our customers and their care for patients and we are pursuing a path to bring CereLink monitor back to the market in the first half of 2023. Our customers remain excited about the product features that set the CereLink Monitor apart from Legacy intracranial pressure monitors. We continue to believe it will be a multiyear growth driver for the company. As we discussed in our second quarter call, we set a goal to return our ACell portfolio to growth in the second half of 2022. We have met this objective with our third quarter results. With ACell products now solidly contributing along with our legacy Integra skin portfolio, we enjoyed organic growth for our wounds and construction franchise north of 8% for the quarter. Also looking forward to the last of ACell MicroMatrix and Cytal products in several European markets, scheduled for the first quarter in 2023 to be a great demonstration…

[Operator Instructions] We will take the question from Lyon Rami Maks from JPMorgan. The line is open, now please go ahead.

Hi, this is Alan [ph] on for Ravi. I had one quick one and followed up by another question. But just to start off, for your updated guidance, similarly, clearly came in quite a bit better than expected when it came to the return provision. What are you really baking in for the fourth quarter impact here?

Yes, we're not providing specific guidance on CereLink in Q4. But I would say that we booked $1.5 million returns provision in Q3. That was, as you said, much better than where we expected, and we view that very positively as customers continue and are willing to wait for the new CereLink to be re-launched. So we view that as a sticky product, which is great to see, and we continue to help them ensure that they've got continuity of care in the interim. I think in Q4, we have a range of our guidance for Q4 that would consider both potentially positive and negative adjustments to that accrual. So in Q4, we will assess new information, any new trends that we're seeing on customer returns, credit process, we'll also assess our progress on our return to market. We'll also assess our manufacturing plans. And we'll take a look at all of that information in Q4 to make an assessment on whether the $1.5 million returns provision is sufficient in Q4 or whether we need to make an adjustment plus or minus. And the same thing for the rework accrual of $800,000, will take in all available information in Q4 and make a sufficiency assessment there in Q4. So our range of the high and the low end of that range contemplates again, potential favorable or unfavorable adjustments to CereLink. But overall, I think our view is a positive development as we currently assess where we sit on the returns.

Got it. And then another question just on SG&A. We clearly saw really good leverage this quarter, a very significant step down sequentially of around $15 million from 2Q to 3Q. I'm just curious how sustainable that really is going forward. Is that really kind of the kind of down to the $140 million, the kind of spend that we should expect on SG&A in third quarter? Was there any kind of one time spending items that didn't happen or not, I guess, the opposite of one type spending that didn't happen in the quarter that will resume going forward? Just trying to get an idea of what we should think of as a sustainable SG&A spend level going forward? Thank you.

Yes. It's a great question. Obviously we worked actively to manage the spend in Q3, but a couple of things that I would point out. Normally as you move from Q2 to Q3, there is a little bit of seasonality of lower OpEx. If you look historically, Q3 OpEx is typically a little bit lower than Q2. I would expect in Q4 that our OpEx will increase a little bit from the Q3 levels. And I would expect that our OpEx levels for 2022 are very similar to 2021. So I think we'll be in that same level as we were year-over-year. One of the things that we've been focused on in the first -- second half of 2021 and in the first half of 2022 is we brought on a lot of headcount. And at this point, I think we're absorbing that headcount. We're integrating that headcount in and also just watching our expenses and making sure that we get the full optimization of that investments that we've made over the last 12-month period. And I think that's what you're seeing there. Caroline, can we take the next question?

Sure. We will take the next question from Ryan from BTIG. Your line is open, now please go ahead.

Thank you for taking my question. A couple of questions for me, Carrie and Jan, I appreciate the color. Just to maybe follow up on Alan's question, I understand CereLink can go in a lot of different directions. But the 50 basis point decline in organic growth guidance for the full year, at all assumed to be the impact from China. Is there anything else in there that we need to contemplate in terms of the updated organic guidance? And then I have a follow-up.

Yes. I think it's a combination of, obviously, from a reported -- let's start with the reported first because obviously, FX is a big impact there in the fourth quarter with updated FX information. But I would say as we move to organic growth, considerations of obviously potential adjustments in CereLink that may be necessary as well as COVID continued rolling lockdowns in China. And then the fact I would say also, Ryan, is that we're not considering any significant improvement in back orders. I think when we were sitting probably here in the July time frame we had hoped that we would have seen some amount of modest improvement in back orders over the course of Q3 and Q4. At this point, we're seeing continued elevated back orders and don't expect any significant improvement in back orders in Q4. So all of that's comprehended and staying at the midpoint of our guidance range that we gave in August.

Okay. Very helpful. And then just maybe a bigger picture question in terms of procedure recovery. If you look at kind of where neurosurgery is right now, 2.3%, you think about that in contrast to Wound Recon. I'm wondering Jan, if you kind of talk about the procedure recovery amongst the two segments and 2.3% still is under kind of that normal threshold I think, that we think of for neurosurgery and that 3% to 5% range. And so how are you kind of the procedure recovery amongst neurosurgery and then maybe contrast that with Wound Recon and how that's kind of progressed back and how you think that progresses going forward.

Ryan, I'll take that first, and then I'll ask Jan to add his comments. But remember that the Neura number there is impacted by the CereLink recall. So if you exclude the CereLink recall for CSS, our number moves to 4% over 4% growth. There's a footnote on that slide that gives you the adjustments there. So I would say that excluding the impact of taking CereLink out in both periods, the underlying business of CSS is it was actually right in line with our expectations of 3% to 5%. So Jan, additional comments there.

It partly answers the broader question. If you look we've seen over in 2022 procedures recover steadily. We're not at 100% yet, neither in CSS or in tissue tech. When we look in U.S. markets, European markets we estimate we're around 95 plus minus at this point. And we expect that between now and the end of the year, beginning next year it will be back to normal procedures level, except China, right? As long as the rolling lockdowns continue in China, we see China at around 80% of normal procedure levels, but the rest of the world steadily going back to the 100%.

Thank you. Appreciate the color.

Thank you. We will take the next question from the line of Dave Turkaly from JPM. The line is open now, please go ahead.

Hi, good morning. Just looking at the highlights of some of the initiatives you announced last quarter, you sold the non-traditional noncore wound closed the facility in France. You mentioned some outsourcing I think, back office type stuff. And I was curious if how those efforts progressed during the quarter. It looks like you're able to offset some of the cost increases. But I guess how should we think about that and maybe that impact on gross margin moving ahead?

Yes. Hey David, I'll take that question. So TWC, we did close that divestiture at the end of August as we had planned. And so one of the reasons for the divestiture was that it was not core to us either from a top line, it certainly was not additive to our 5% to 7% growth ambitions. And it was also lower than our corporate average margin as well. So moving away from that, divesting that business and focusing on our core portfolio, ultimately, we'll see as we move through more of these macro inflationary challenges, we'll start to see the positive impact of that on our margins into 2023. So that was completed as planned in the quarter. For the facility in France, we closed that. The production is now moving into our Switzerland facility there that transfer should be complete by the end of the year. That's a high-cost facility. So again, as I think about levers in terms of gross margin improvement that continues that cost optimization. And I would expect you'll see again, a full year benefit of that moving into 2023. And then for outsourcing, you will start to see some of that benefit in the fourth quarter. So I know there was a question regarding OpEx expenditures. And certainly in the fourth quarter we'll start to see the benefit of the lower cost to serve of some of those outsourced back office activities and you'll have the full impact of that into 2023. So in my view, there’s a lot of underlying levers here for gross margin improvement as well as OpEx leverage as we move into 2023. Hopefully, we’re in an environment where the inflationary increases abate. And combined with our other initiatives like price capture, favorable mix as we continue to drive NPIs and TT growth. All of that will be able to be more visible in our gross margin and our EBITDA margin lines in 2023.

Great. I guess my very quick follow-up would just be -- it sounds like you’re still confident that $70 million to $72 million that long-term target for gross margin is still achievable when we get back to somewhat of a more normal environment. Is that fair?

I think that’s the key is when do we get back to a more normalized environment, there’s nothing that I would say that have nothing in the business that has been impacted that would suggest that we could not reach 70% to 72% gross margins. It’s a question of the time line to get there and to reach that. I think we continue to work on a number of visible levers to expand our margins. We’ve just got to get through some of these macro challenges and get to a more normalized environment. But I think all of those drivers are still there. They’re just being masked by some of those macro challenges.

Thank you.

Thank you. We will take the next question from Vik Chopra from Wells Fargo. The line is open now. Please go ahead.

Hey good morning and thanks for taking the question. So just a follow-up on the OpEx question, Carrie. I’m just wondering if you'll be able to get back to the high end of the 5% to 7% growth range, while managing your expenses. So I appreciate any color you have on that. And my second follow-up was on the capital environment, the CapEx environment. What are you guys seeing over there? And maybe you can sort of parse that out between U.S. and international that will be appreciated. Thank you so much.

Yes. Let me – I’ll start with the capital question and then go to your cost question and then ask Jan to add some comments there as well. In terms of capital, I think you have to kind of separate out the CereLink impact. So if you take out CereLink both from the prior period and this period, our underlying capital was strong. It was low double-digit growth in the quarter. And that was the direct result of a very strong growth in CUSA Capital. So we’ve seen some nice growth year-to-date, but certainly third quarter showed the resiliency of the portfolio in terms of CUSA and that double digit -- low double-digit growth. And I would say we saw growth both in international and the U.S. and that CUSA capital. We do expect that we would see sequential growth going from Q3 into Q4 and still year-over-year growth in capital into Q4, but probably not as high as a level that we saw here in Q3. It could be timing issues. We were quite surprised at the strength of the CUSA capital here in the third quarter, which was nice to see. On your question of balancing the OpEx, the operating expenditures against the growth target of 5% to 7%. Certainly, I’d ask Jan to comment here. But in terms of my view, it’s about cost optimization. It’s about prioritizing and challenging what we’ve historically spent on. In an environment where you have lots of macro challenges, including inflationary headwinds, it is up to us, our management team here to really scrutinize what we’re spending on, almost apply a zero-based budgeting approach and really looking at what we spend and making the hard and tough decisions on pivoting towards what’s most important in our spend. So maybe I’ll ask Jan to comment there as well.

Yes. Just to build on that, as over the summer, we were looking into the business and after me having been here more than six months, it was the right time to challenge all the costs that we had brought on board over the past couple of years. And question with a zero-based approach, but question redeploying of resources rather than continuing to add in all those areas. So we translated that into a slowdown of some of the hirings, but a stepped-up activity to redeploy costs from left to right, challenging legacy investments, challenging the return on investment of those investments to further strengthen our investment in the strategic priorities of the business. So at no point have Carrie and I, have we held back on things that we consider strategic investments that are behind the growth catalysts and the longer-term initiatives we have going.

Thank you. We will take the next question from the line Matt Taylor from Jefferies. Your line is open now, please go ahead.

Thank you for taking the question. Can you hear me okay?

Yes.

Okay. Great. So I had just a couple of follow-ups on some of the macro things you highlighted. I guess I was wondering you gave us some color on the sequential progression of the backlog of supply chain issues. Could you help just to quantify any of that and talk about line of sight over the next few quarters? What -- when do you think we’d most likely see some of that start to alleviate? And what would be the catalyst for it?

So let me answer that. So as Carrie indicated in her prepared remarks, our backlog today is more or less at the same level as it was in the third quarter. And we expect this to continue until the end of the year. We do see improvement as of next year as we execute on several levers to get over some of our supply shortages or late supplies. Very much focused on building further raw material inventories in areas where raw materials have been constrained. Think about packaging materials. Some metals have been unpredictable in their supply. And then second, we are developing alternative suppliers, second suppliers or third suppliers in those areas that have been constrained. All of that is going to start to become online in the fourth quarter, and that’s where we see a further catch-up in back orders as of next year.

Got it. Thank you for the additional specificity there. And I just had one for Carrie on delta in earnings from the August update now. Is that all the outperformance from Q3 in CereLink or could you unpack that at all crosswalk to where you got to from where you were before at the last update?

Yes. I mean it really is the Q3 outperformance. So we beat the midpoint in Q3 by about $0.15 and that is essentially the raise for the full year at the midpoint is $0.15. So we’re really flowing through that outperformance in the third quarter into the fourth quarter and into the full year guidance there. And so as we talked about our revenue as well as our continued cost optimization of our operating expense line items, we believe that we could flow through that entire Q3, which, again, is continuing to offset. I don’t -- that last slide that we added in, I hope, is helpful because I think with there’s so much noise around the FX and our divestiture and obviously, the CereLink recall, we wanted to help you provide some additional perspective of that when you unpack all of that, our EPS performance has actually been quite strong this year and flowing through that third quarter performance to the full year.

Thanks so much.

Thank you. We will take the next question from line Steve from Oppenheimer. The line is open now, please go ahead.

Thank you, good morning. So it seems like you have a good line of sight on CereLink here. I was wondering if you could talk about the progress our sales force has made this year in terms of driving interest in CereLink new orders? And maybe you can continue to make on the ground as you work toward a return of the product next year. Can CereLink sort of be an outsized contributor next year based on any sort of pipeline build ahead of the product re-launching in the first half?

Yes. The feedback we’ve received on CereLink since the launch has been positive. Customers do like the breadth of the features and the ease of the user interface that CereLink brings to them. By acting decisively and solving the problem for our customers by bringing ICP Express, I think we definitely have protected the brand of Integra and the brand of CereLink as a great partner to work with. Feedback we keep getting from customers is that ICP CereLink is product that in the market does not have a comparable yet, so we’re well ahead of the market. And as we are preserving that relationship with customers, we feel when we bring the product back in the market in the first half of next year. This is not really going to be a relapse. This is a continuation of the launch that we have in place, and we do see CereLink as a contribution to 2023.

And there is a backward compatibility to that microsensor, Steve, as well. So as the good news is when you -- when surgeons are using a microsensor and placing that into a patient’s head. There’s -- again, there is a familiarity with that microsensor. So there’s a certain stickiness to the product that as we are out of the market for a period of time, and they’re using the ICP Express, again, that uses the same CereLink monitor -- or I’m sorry, microsensor. So as we bring the product back in, there will be a continuity of that micro sensor that helps with that -- keeping that continuity there.

Great, thanks. And then just secondly, given the year-to-date performance on free cash flow and as you mentioned the ample liquidity. Just latest thoughts on M&A, your appetite for M&A, your ability to really execute on that right now? And should we expect some pickup in activity here as we look over the next several quarters?

Yes, definitely, M&A remains a priority to leverage our strong balance sheet over the past year as we went through strategy. I think we have clear line of sight what type of targets we’re going after, opportunities to broaden our scale up in our current CSS or tissue tech markets clear line of sights of adjacencies that we’d like to broaden into or pure technology additions and of course, international expansion opportunities. So four areas where we’re actively looking into opportunities at this time, definitely, the market is getting more ready and fluid for opportunities to start moving.

Great. Appreciate it. Thanks Jan, thanks Carrie.

Thank you. We will take the next question from the line Jayson Bedford from Raymond James. Your line is open now, please go ahead.

Hi, Jan, it’s Eric [ph] on for Jason this morning. Just wanted to ask a question on the breast PMA, have you generated any more new data to support the submission? And do you know if any of your competitors have also filed their plan filing?

So first answer to your second question. No, at this point in time, no other competitor has filed. We expect several competitors to be thinking about filing but none are in the filing stage yet. In terms of further data, we were working interactively very positively with the FDA to further provide answers to some of the questions that were asked at the panel. They have been defined in a deficiency letter. Some of those answers are about more data, more data from the MRO [ph] database. Other answers have to do with more GMP manufacturing practices question. So there’s been a steady exchange of additional information. And all of that will come together in a amendment submission, which we plan to submit by mid next year.

Okay, thanks for that. And just a separate question, just wondering where you got in terms of your ability to pass on price overall?

So on price, we’ve been able over this year with price cover the inflation pressure that we’ve seen in the business. We, over the past years, have always been able to get net price this year. We’ve got more than the typical years in the past. We continue to focus on price also going forward, get to leverage price getting as a way to deal with inflationary pressures on our materials and our label input resources.

And I would say, as we think about price, it can take a number of forms, right? There is increases in list price. You decreased the level of discounts, you look to increase price on new customers on new product introductions. You have the opportunity in enterprise contracts to negotiate price or volume offsets there in your enterprise contracts. So there’s a lot of different levers that we have. But we’re also looking at other things as well beyond price to shore up margin buffers. And those include tightening up our customer returns policy. That’s a source of leakage that if we can ensure that our customers are adhering to our adjacencies as it relates to returns, that’s a way to net capture more price on the initial revenue. We’re also working on inventory management, more effective inventory management as well as other cost reduction areas and yield manufacturing improvements in our plants as well. So all of those things, as we think about levers to offset some of the inflationary pressures and the impacts of FX all come to bear into the solution set that we’re leaning on right now.

Okay, thanks a lot.

Thank you. We will take the next question from Lin [Ph] Greg from Bank of America. The line is open now, please go ahead.

Good morning. Thanks for taking the questions. I wanted to start with 2023. And I don’t expect you guys to provide guidance at this point, but I did want to see -- if you look at where the Street is with the Street is they’re expecting above 5% organic growth, I think, over 100 basis points of operating margin improvement. So I wanted to see -- get your thoughts, see if that’s reasonable in your view given some of the moving parts. And if not, or if you guys aren’t willing to provide whether that’s reasonable or not, maybe just some color on how we should be thinking about 2023?

Yes. I mean, I can appreciate the question on 2023. And we’re not in a position at this point that we want to comment on 2023. We’ll do that in our February earnings call that will provide that level of detail. Certainly like to see how the rest of the year plays out. One from a macro perspective, just from an environment perspective, understanding where FX rates kind of come out at the end of the year as well as just overall risk to the business in terms of macro challenges of recession risk that not only impact our company, but many companies in other industries as well. So I think we’ll see how things play out over the next few months. The good news is I think procedure rates continue to improve, as Jan mentioned earlier. And I do think that in a recessionary environment I think hospital procedures will continue to hold up with our portfolio. As you think about our products that are used in the various procedures, I think our revenue has an opportunity to hold up very nicely. I would say that certainly, as we think about 2023, we’ll need to advance our return to market for CereLink. So we’ll want to be able in February to give you more definitive information of what our time line looks like for the return of CereLink to the market as that would be a key growth driver for us in 2023. I think there are a lot of fundamental growth drivers that Jan took you through one of his last slides that he took you through, shows all the various things that are working in our favor as we advance our product portfolio that provide opportunities for organic growth drivers for next year. And then ultimately, as we talked about, there are some other questions on some of the margin drivers that I think in combination with a more conducive environment to revenue growth as macro challenges abate, combined with the levers that we have on the cost side, ultimately would lead to some margin expansion in 2023. Jan, any comments there?

No, I think you summarized it well. If you look at this year in the market, markets are good. We have momentum. We’ve been investing and continuing to invest in the catalyst. Next year, we should start to see the return of that momentum and the further investments.

Great. Thanks for that. And just as a follow-up on the CereLink recall, maybe just a little bit, if you guys could provide a little bit more color on the steps necessary for the recall. And I understand that timing is still uncertain. But -- if you could just kind of walk through the steps of -- I believe you said that you’re close to identifying the root cause. So maybe when will that be finalized? And then any other regulatory or quality steps that need to that you need to do to hit that mid-2023 relaunch?

So at this point, we have identified the root cause and also the technical fix for that root cause. So as of this point three parallel work streams, the first one is to put the validation and verification in place, we need to now provide a statistical number of tests that prove that the fix is a true fix that data is important for submission to the regulatory authorities. In parallel, we’re implementing the work procedures in our manufacturing to fix the technical to bring the technical fix into the product as well as supply a number of new components that will be added to the product. And then the third stream is to submit the data to the regulatory authorities. And that’s where the time line is not fully clear yet whether that’s going to be a short or longer submission okay? So it’s the submission to regulatory authorities that drives a bit of the uncertainty in the time line, more than the technical and the manufacturing execution.

Great. Thanks for taking the questions.

Thank you. We will take the next question from line of Drew from Morgan Stanley. The line is open, now please go ahead.

Hi, Jan and Carrie. Just ask one question just for time’s sake. But Jan as you were kind of talking about you’re continuing to invest in your strategic priorities, you just brought on a Head of International and Head of Digital, but I’d be curious just to see how maybe your R&D or really your OpEx spending has maybe evolved over the past quarter or two? And how you’re going to kind of reposition R&D spending maybe going into next year, if you can give us like any sense of how much you’re going to be spending on those initiatives versus what’s kind of core in the portfolio today? Thank you.

I can’t give you specific guidance to that, but we definitely are on track to further step up our R&D spend as a percent of top line. Yes, some of that additional R&D spend will be either used for digital features to be added to our products, but also stepped up clinical research that is a key element in accessing new international markets. From a further building out of SG&A or OpEx on support staff, I think that’s going to be marginal given that if I look at the international organization, we have a solid footprint, and we’re going to be redeploying rather than adding a lot of OpEx to that organization.

Thank you. We will take the next question from line Richard from Truist. The line is open, now please go ahead.

Hi, thanks for taking the questions. Just on -- one on capital and one on the procedure environment. I guess on capital, it sounds like the underlying environment is pretty benign for now on the pressure hospitals may be feeling on how early to your business? Or I guess if you could clarify, is that just Integra-specific CUSA sales? What can you comment on the environment relative to your specific performance? And how you’re feeling about your customer’s kind of capital spending help as we look forward into the next budget here? And then I’ll just ask a second one on procedures. Any comments you can offer on the exit trajectory from 3Q in September, what you’re seeing into 4Q and kind of how that specifically for the procedure part that is factored into your guidance? Thanks.

Yes. Just on your capital question, as a reminder, capital is roughly about 6% of our total revenue. So it’s not a significant portion of our total revenue. But we saw some really nice growth coming out of CUSA, as I mentioned, low double digits. And I think what that shows is that even when there are perhaps budget constraints, that if you have a compelling value proposition that you can offer hospitals and operating theaters, that ultimately drive the efficiency of their operating theater. Then there is room. There is a place for capital to be spent, and that’s what I think we continue to see with our CUSA capital. There’s no doubt that the selling cycles are longer than they have been in the last couple of years because of COVID and the fact that there is more scrutiny on capital budgets as hospitals. But I think this continues to demonstrate that if you have a great product and a compelling value proposition, there is room for hospitals to spend. And that’s what I think we continue to see on CUSA. And as Jan mentioned earlier, we did some line extensions on CUSA to continue to add a few more tips to the portfolio that continues to help with the utilization of that investment for our surgeons going forward. And then I think you had a question on exit rate procedure rates. Maybe I’ll have Jan, maybe just comment on that.

Yes. I think the question is about how we see procedures further evolve, right? So like I said before, over the past 9 months, we’ve seen every quarter steady improvement in procedures going back towards the pre-COVID levels. As hospitals either solve the situation of nudge [ph], shortage or learn to organize to deal with a different nurse staffing as well as, of course COVID capacity utilization is more and more a nonfactor. We’ve seen this in pretty much in every country across the world. Some are a bit ahead, some are a bit behind, but all move in the same direction. And as I indicated, the one outlier is China, where with the rolling COVID lockdowns; we still only see procedure levels at around 80% of pre-COVID normal levels.

Thank you.

Thank you. This now concludes our call. Thank you for joining the Integra LifeScience Third Quarter 2022 Earnings Call.

Thank you.