Integra LifeSciences Holdings' (IART) CEO Peter Arduini on Q2 2014 Results - Earnings Call Transcript

Aug. 5.14 | About: Integra LifeSciences (IART)

Integra LifeSciences Holdings Corporation (NASDAQ:IART)

Q2 2014 Earnings Conference Call

August 05, 2014 08:30 AM ET

Executives

Angela Steinway - Head of IR

Peter Arduini - President and CEO

Glenn Coleman - CFO

Jack Henneman - CAO

Analyst

Chris Pasquale - JPMorgan

Glenn Novarro - RBC Capital Markets

Jon Demchick - Morgan Stanley

Daniel Zulauf – Barclays

Raj Denhoy – Jefferies

Larry Eggleston - Wells Fargo

Bob Hopkins - Bank of America

Jason Bedford - Raymond James

Steven Lichtman - Oppenheimer

Matt Miksic - Piper Jaffray

Operator

Good day, everyone. And welcome to the Integra LifeSciences Second Quarter 2014 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.

Angela Steinway

Good morning. And thank you for joining us for the Integra LifeSciences second quarter 2014 earnings results conference call. Joining me today are Peter Arduini, President and Chief Executive Officer; Glenn Coleman, Chief Financial Officer and Jack Henneman, Chief Administrative Officer who will join us for Q&A. Earlier this morning we issued a press release announcing our financial results for the second quarter 2014 and informing 2014 guidance.

Certain statements made during this call are forward-looking and actual results may differ materially from those projected in any forward-looking statement. Additional information concerning factors that could cause actual results to differ is contained in our periodic reports filed with the SEC. The forward-looking statements are made only as of the date hereof and the company undertakes no obligation to update or revise the forward-looking statements.

Certain non-GAAP financial measures are disclosed in this presentation. A reconciliation of these non-GAAP financial measures is available on the investors section of our website at integralife.com. We will reference the financial results in the press release and will not restate the individual numbers. As a result you may want to keep a copy of the release handy during the call.

I will now turn the call over to Pete.

Peter Arduini

Thank you, Angela. For the first half of 2014 behind us we are pleased to report that we’re making progress against our plans to execute, optimize and accelerate growth. In the second quarter worldwide neurosurgery standalone into joined strong performance and let us to record sales of $231 million.

DuraSeal beat our expeditions for the quarter contributing about 9 points consolidated reported sales growth, while Global Neurosurgery business increased 10% on an organic basis. Worldwide skin and wound sales increased 12% over the prior year, which represents excellent progress in this area of strategic progress.

Finally, our profit margins in cash flow increased significantly versus the prior year resulting from increased sales and improved product mix and lower year-over-year quality expenses. From an operational standpoint we’re proud of our team's successful implementation of our new ERP system.

We encountered no major issues transitioning our normal operations into a new system at the go-live in early May. Now, approximately 75% to 80% of sales are flowing through a single ERP system and we eliminated roughly 50% of our legacy systems during this implementation.

Our team will kick off phase II to bring additional domestic, international sites onto our common platform later this year. In addition to this key accomplishment we made significant progress integrating the DuraSeal acquisition launching a reverse and full shoulder product lines, transitioning production activities from our Burlington and Andover sites and on boarding new executives.

This morning we’re also very pleased to announce that we closed out our diabetic foot ulcer trial and believe that the data achieved our goals for this study. We are currently accessing and finalizing our data and preparing submissions to government agencies and clinical publications.

As you know this is the first critical step in securing indication and reimbursement for new DFU products in the outpatient setting. Executing on these important initiatives increases our confidence that we will achieve our goals we laid out at the Investor Day meeting.

Turing to second quarter top-line results, US neurosurgery had another stellar performance across the portfolio. US neuro increased about 12% on an organic basis, sales of products outside of Dura repair also increased 12% and total reported segment sales increased 45% over the second quarter of 2013.

DuraSeal and DuraGen were both strong contributors and neural critical care and cranial positioning drove the remainder of the segment growth, each increasing low double digits. The new ICP monitor we launched in the fourth quarter drove the growth in critical care and strong capital sales led the increase within cranial positioning.

Our US extremities business grew 8%, driven by higher sales of skin and wound products the addition of a few specialized regenerative wraps and the launch of our new [indiscernible] primarily used for certain degree burns were the main drivers of growth in this franchise.

We’re excited about the pipeline of opportunities in skin and wound and expect continued growth in this important product franchise which represents more than half of our US extremities sales.

In addition the shoulder launch contributed to growth in the quarter and we expected to be a larger contributor in the second half of the year. We have expanded our customer base through new distribution and continue to track new customers with the features and benefits of our new reverse and total shoulder offerings.

We’re disappointed with the results of our lower extremities hardware which declined in the quarter over strong performance in the prior year. We believe we lost some share in this area partially as a consequence of sale turnover which is being addressed and new product pipeline conversions specifically in our new total foot system, which we launched in the latter part of the second quarter, mainly in the second quarter.

We expect to recover in the second half to result from improving target sales execution mainly in territories that experience turnover for the second quarter and increasing contributions for new product launches. The US spine and other segment increased 4% over the prior year increasing for the first time since the fourth quarter of 2012. Private label increased $14.1 million improving over its weak performance in the second quarter of last year.

We expect private label sales to decline in the second half consistent with our prior forecast for this business. Our US spine business was relative flat with an increase in biologics making up for small decline in spine hardware. US instrument sales decreased about 4% over the prior quarter mainly due to lower sales in acute care and discontinued products.

Alternate sight instruments saw growth and lighting sales increased double digits in the quarter. As hospital spending in this segment is still cautious, we believe hospital investments in new instruments will be slower through the rest of 2014. Sales in our international segment increased 9% over the prior year, DuraSeal was the largest contributor to this growth and sales also increased in Dural Repair, Tissue Ablation Skin and Wound which are the franchises of focus for international strategy.

These contributions were largely offset by weak orthopedic sales and the late tenders in a few large markets. That said consistent with our strategy for growing our international presence we’ve incorporated [indiscernible] uneven quarterly results into our expectations and we'll continue to concentrate on our efforts in driving growth in our focused products in the markets.

We successfully added new leadership to our international team and are launching various new products in the second half of the year, both of which lead to accelerate growth.

Now I’ll turn the call over to Glenn, who'll discuss the financial results in more detail and review our 2014 guidance. Glenn?

Glenn Coleman

Thank you, Pete. Before discussing the financial results and guidance for the second quarter I’m going to start by saying that I’m excited to be part of the Integra team. The company has a really unique opportunity not only to drive top line sales growth at or above the market but also to grow earnings faster than sales to better leverage of our operating structure and cost reduction opportunities.

I’m joined and we are at an inflexion point, and look forward to being part of the leadership to drive positive change in the business moving forward. I have met many of you in my first three months of CFO and look forward to meeting more of you in the future at various investor conferences and road shows.

Turning to our financial results, overall I would characterize the second quarter as the solid quarter with 13% sales growth in line with our expectations. Our earnings and free cash flow came in slightly better than expected.

Based upon our sales performance to the six months of $446 million or 11% growth over the prior year period and our comp projections for the remainder of the year, we are currently maintaining our overall sales guidance for the full year to be between $920 million and $940 million, which will represent sales growth of 10 to 12%. Having said this, we are making some minor modifications to the segment growth rates to reflect recent performance and trends in our business.

Starting with US Neurosurgery given the strong start to the year, we now expect full year sales to increase between 35 and 40% over the prior year, up from our previous guidance of 30 to 35%. In our US Extremities segment we are lowering our full year sales expectations to reflect weaker than expected year-to-date performance in our lower extremities business.

Our revised full year guidance for this segment is now for sales to increase in the high single digits to low double digits, as compared to our previous guidance for growth in the low to high teens.

Finally, in our US Instrument segment we now expect sales for the full year to decrease in the low single digits versus prior guidance of being roughly flat largely due to new starts in hospitals and surgical centers being lower in the first half of the year than are initially expected.

Consistent with our prior guidance, we expect full year sales for US Spine and other segment to decrease low to mid-single digits and international segment to increase low double digits to mid-teens.

Let me now spend the few minutes to walk through the income statement line items and consistent with Integra’s past practice provide commentary for both the second quarter results and our expectations for the full year.

In the second quarter GAAP gross margin increased (228) [ph] basis points versus the prior year period to 62.4%, while adjusted gross margin increased 320 basis points to 66.3%. This improvement was largely driven by a higher concentration of our sales coming from our high margin products such as Skin and Dura Repair, improved manufacturing capacity, utilization for our regenerative products and lower remediation and recall-related cost versus the prior year.

The improvements in gross margins on a GAAP basis were not as significant as our adjusted gross margins mainly due to intangible asset amortization for the DuraSeal acquisition as well as higher planned consolidation cost as we’re nearing completion of the shutdown and transition of our Burlington and Andover sites, which are expected by the end of the year.

For the full year 2014, we continue to expect GAAP gross margins to be between 61 and 62% and adjusted gross margin to be between 65 and 66% unchanged from our prior guidance. In the second quarter R&D expenses increased over the prior year to approximately 6% of sales, this planned increase is primarily associated with funding clinical work and product development in Extremities and Neurosurgery, two areas we believe will be key growth drivers for us long term.

We expect R&D spending for the full year to remain at 6% of sales, which is consistent with our prior guidance.

On a reported and GAAP basis our second quarter SG&A expenses increased by approximately $12 million but improved 40 basis points as a percentage of sales as compared to the prior year second quarter. The increased SG&A cost were a result of higher commissions, distributor fees and integration expenses from the DuraSeal acquisition, higher depreciation expenses from our ERP system that went in to service in the current quarter and employee severance costs.

SG&A adjusted for special charges as detailed in our press release is 45.0% of sales an improvement of 90 basis points compared to the prior year period largely due to better leverage of fixed cost. For full year 2014 we reported SG&A within a range of 46% to 68% of sales and adjusted SG&A to be between 42% and 44% of sales both of which are unchanged from our prior guidance. In the second quarter our adjusted EBITDA margin was 18.8% up 360 basis points over the prior year period driven by both the aforementioned higher gross margins and leveraging of our SG&A expenses of higher sales.

For 2014 we’re expecting approximately $33 million in depreciation expense a $30.5 million intangible asset amortization. Cash interest expense was $3.5 million in the quarter. We expect the total about $14 million of cash interest expense and approximately $21 million of total interest expense in 2014.

As a reminder we expanded our credit facility at the beginning July which provides us with greater financial flexibility and borrowing capacity up to $900 and enhances our ability to pursue our M&A strategy. This renewal and extension does not change our interest rate on bearable borrowings and has a negligible impact on total interest expense going forward.

We ended the second quarter with a reported effective tax rate of 32.9%, however for the full year continue to expect our reported tax rate to be between 23% and 24% which is unchanged from our prior guidance. Our adjusted tax rate for the second quarter of 2014 was 31.9% as compared to 26.7% in the prior year period. The increase in adjusted tax rate in the current year was largely due to higher income generating in the US versus foreign source income as well as certain onetime favorable cash benefits in the prior year but did not recur in the current period. We expect our adjusted tax rate for the full year to be between 31% and 32% unchanged from prior guidance.

Turning to cash flow, we generated 15 million of cash from operations during the second quarter and invested $9 million of capital expenditures resulting on a free cash flow of $7 million or an adjusted free cash flow conversion of 32%.

This was a significant improvement of $18 million of free cash flow over the prior year second quarter and primarily resulted from an increase in our operating cash flow. Higher cash net income as we moved past our recall from the prior year period as well as improvements in working capital drove the increase. In addition we have lower capital expenditures versus the prior year period most notably for a new manufacturing facility in Plainsboro which is nearing completion as well as lower ERP system expenditures.

As we discussed at the Investor Day meeting in May we believe adjusted free cash flow conversion will be an important measure for us moving forward as we execute against our optimization plans and roll out of our ERP implementation. Given it's our ability of free cash flow from quarter-to-quarter we’re also providing the trailing 12 month performance in our press release which should help paint a greater picture of the overall trend. We continue to expect our full year operating cash flow to be between $60 million and $80 million, capital expenditures to be between $45 million and $50 million and adjusted free cash flow conversion to exceed 10% consistent with prior guidance ranges.

Let me wrap up by providing an update to our guidance for the second half of the year. For the third quarter consistent with historical trends, we expect sales to be essentially flat for the second quarter, but earnings increased sequentially largely due to lower SG&A cost as we complete the transfer of DuraSeal to our direct sales force which will increase synergies at the ball point. While we expect earnings to grow sequentially, the increase is not as deep as original projections because our second quarter earnings came in higher than we had anticipated and we do not expect to sustain the same level of gross margin performance generated in the second quarter.

Moving to the fourth quarter we will then expect to see a steeper increase in both sales and earnings to reach our full year guidance.

With that I’ll hand the call back over to Pete.

Peter Arduini

Thank you Glenn. At our Investor Day meeting in May we spent a lot of time outlining our strategy to accelerate growth, optimize our business and improve execution. We’ve made progress in each of these areas since the meeting and here is an update.

On accelerating growth we completed our Diabetic Foot Ulcer or DFU clinical trial as I mentioned earlier and we’re pleased to have the study closed out and see results have set us up nicely to get approval and to bring a new DFU product to the market place. This news which is a big step forward is nonetheless just part of our multiyear plan to develop our Dermal Regeneration products for the Diabetic Foot Ulcer market and expand selectively into the wound care space.

We're still in the process revaluating our data and we’re also focused on our filling and publishing strategy. We plan on releasing the data via a peer-reviewed journal which we anticipate to be some time in 2015. Please keep in mind that we’re on track to the dates, we previously communicated and if successful this would be a mid-2016 launch of the product in the US

Also we were encouraged to see progress being made and addressing reimbursement for package skin substitutes. Based on the proposed changes Integra skin substitute products, are project to be in the high cost reimbursement category in 2015. These events and milestones increase our confidence that we will develop a successful DFU offering from the US market which would be a key contributor to our long term organic growth profile.

As noted previously we rounded out our shoulder portfolio towards the end of 2013 with the launch of reverse shoulder system and the proximal humeral plating system. We expanded our customer base with additional users brought in with new distributors and we’re developing our distribution network to expand coverage and bring on high-quality, experienced shoulder distributors and direct sales reps in select areas.

Turning to sales force and surgeons continues to be a major focus, so we have added local regional mobile labs, onsite education and digital online training.

Finally, we’re building a team of key opinion leaders so that we can leverage our expertise to build out our surgeon education program. Our enterprise selling efforts are beginning to show promise and open new doors, as remainder enterprise selling is about taking Integra’s existing product offering into the C-suite of the hospital networks and creating opportunities for our sales teams to better reach potential customers, thereby increasing our market share.

The premier group purchasing organization contract for small bone orthopedic implants has generated access to the top IDN systems in the premier network. And we’re in the early stages of identifying our primary opportunities and building a priority list to expand our extremities market share. We’ve also made substantial progress in our veteran affair strategy where Integra has not typically had a strong presence. We submitted contract proposals for several of our business areas, the most (mature) [ph] one being neurosurgery.

Once approved the contract in this space would provide the sales team with approved access to government facilities and open up new market opportunities to Integra which we believe will benefit sales in 2015 and beyond.

Finally, we’re executing well on the DuraSeal integration. We recently consolidate the US sales efforts supporting DuraSeal into our direct neurosurgical sales team. The ongoing transition from legacy distributors has gone smoothly as everyone involved is working hard to ensure customer service is not impacted.

Outside the US we’re still working to optimize our global distribution of DuraSeal with the right mix of direct and distribution structures. Overall, this deal has been success and met and in many cases exceeded our expectations. We have the plans and capabilities in place to deliver on our long term profitability targets by simplifying the business and accelerating growth. Over the next six to 12 months we will accelerate growth with our new products particularly in our shoulder and skin business, with continued execution we’re on track to drive above market performance in our results over the coming years.

Before we move onto Q&A I'll also like to thanks Jack Henneman for all the hard work over the last 3.5 years that we’ve been working together. Jack has been a pillar at Integra serving for seven years as CFO and 16 years all in. And Jack will be retiring on September 30th so this is his earnings call. During his tenure as CFO he transformed the finance function to accommodate Integra’s growth, recruited and developed key leaders in accounting, tax, financial planning and analysis and treasury and raised almost $1 billion in new capital from banks and in debt in the equity capital markets.

During the last 16 years Jack has been responsible at various time for the company’s regulatory affairs, quality, clinical affairs, human resources, information technology, legal affairs and the management of the company’s surgical instruments business, fundamentally touching all functions at some point. He's led the business development functions since 1998 and played a key role in more than 40 acquisitions and alliances that the company has completed during his tenure. Jack, thank you for all your contributions to Integra and wish you all the best.

Now we’ll be happy to answer your questions in an effort to accommodate a large number of requests, please limit yourself to one question and one follow-up. If you have additional questions after that, you may rejoin the queue.

Operator, you may now open the lines for our participants

Questions-and-Answer Session

Operator

(Operator Instructions) We’ll take our first question from Chris Pasquale, JPMorgan.

Chris Pasquale - JPMorgan

Pete can you talk a little bit more about the moving pieces within the extremities business in particular, how much do you think shoulder can move the needle in the back half of the year? And what the issues were in the lower extremities segment this quarter and how you correct those?

Peter Arduini

Yes. So Chris, I would start up to say overall 8% of extremities was obviously down below where we want to, where we want to be our skin business, looks promising some of the plans that we have on actually how we’re going to market some of the new launches looks robust and so we see that continuing on, not only in the second half but into next year.

Shoulder is doing quite well, I think we've been adding in the first half, obviously distribution, but we’ve been doing it at a methodical pace. Part of that is to make sure that we have -- in many ways don't not run our supply lines, have the right stats, have the right support as you bring distributors on and so as well as some direct territory.

So, we see in the second half that picking up and accelerating and that’s kind of the plan that put in place as you know you kind of have that initial launch of users to bring new folks on, there is a lot more trading and development and that’s where a lot of investments be going in Q2 to accelerate the second half. I think other parts as well have been doing great, we just launched a new called Freedom Risk, which is a new product in the risk, literally just launched at the end of the quarter, it’s a unique product that we believe is also going to be adding to growth in the second half and then on the lower -- I think it comes downs to this we actually with some territory changes and alignment actually opened up some territories with some promotions and we actually lost some folks, I would say in the mix of due turnover probably should have a little bit better backfill plans now with some of the new changes we’ve gotten the leadership team and the sales organization we actually have a ball pen structure in place.

So, a chunk of that was in some open territories as you know if you don’t have folks in the territory you don’t sell so we had some mix there and now we launched a new lower foot system which is really nice system it’s called TFS2, but as we did a conversion from the old to the new we had a little bit of freeze in the marketplace where folks launched the new system so that’s behind us and we launched -- and the spectrum of things it was probably couple of hundred thousand of business in that range but it had the impact.

And so, we’ve addressed the sale territories, we got the raw product launch out and we see acceleration in the second half but it’s going commented on obviously with little bit slower start in the first half on overall lower we adjusted our expectations for the total year but we still see it accelerating sequentially and into the second half.

Chris Pasquale - JPMorgan

And can you walk through the timeline for DSU in some more detail, when do you expect to be in position to complete the FDA submission and what are you anticipating for review timeline that would put you out at mid ’16 before you could commercialize, are there other steps besides the approval that you need to complete before that launch?

Peter Arduini

Yes, well I mean there is a series of things but the key parts are is we did threw all of our data here and the submission happening before the end of the year is a combination of making sure, we’re really tight on what claims and things that we obviously want to go after and we spent the time and money to do a robust enough study that we think we have different ways to look at the data, which is a good thing, different cohorts but then obviously from that filing standpoint, we are estimating it's probably in the neighborhood of somewhere between nine months to a year and so we get the full approval based on just timing obviously those things could accelerate if we see the approvals a little bit faster but that’s kind of how we see the normal window in the broader PMA process and in generally other markets around the world could be around the same time period.

I think when it comes to the publishing the challenges with that we’ve got multiple journals that will be approaching obviously our lead author as well and the timing of those things will vary. I think as we mentioned 2015 is one we believe the data will be published, will that be earlier in ’15 or later that’s going to be based on the deadlines in the articles. As we get closer with that and we know what things are coming out we’ll communicate more of that, and then obviously from how all that all plays out from a launch standpoint, there is operational components here.

So, we have the new plant coming up online, we have packaging approach, new type of actual product and things that we'll be working on between now and then as well as building out our sales channel. So, those are all the different items but obviously the things that we’re excited about is really having met our goals for the study which [indiscernible] us up well to have a strong data set that we believe will put us in position for the goal which we want which is moving towards reimbursement in the outpatient setting.

Operator

We have our next question from Glenn Novarro, RBC Capital Markets.

Glenn Novarro - RBC Capital Markets

Pete, just a follow up on DFU just to be clear, the takeaway you want us to have this morning is that you’ve seen the DFU data and there are a lot of positives in the data, lot of positive aspects to the data that’s why you put out a press release that’s why you are filing and then the only last minute, last changes or last adjustments you are going to make is specific claims, do I have that correct?

Peter Arduini

Yes, well, Glenn as you know like in many cases this will play probably more how you think about a biologics pathway in a lot of cases are now some of these play out, we have done a multi-centered clinical trial, we believe that it’s very much powered appropriately that we focused on our primary end point and we had many other secondary end points that were pointing to the data, you ask that the point is that we look at our data at this point in time and we feel very good that we met our goals of the study and so now that it kicks us into the next level producing uncertainty meaning that we can start submitting our files to different government agencies, publishing strategy and then as I also mentioned in the script, some of the preliminary evaluations that are coming out of federal registry show that how our product would be categorized, would move us into the higher reimbursement bucket.

So that’s the combination of the news and so none of that gives us a 100% confidence that we’re going to have a product within the space, but we have very good study, we think we’ve got good news on reimbursement. We have a very clear plan on moving ahead with publication strategy as well as with our filing strategy and we’re quite clear internally, what we need to do to actually manufacture ramp up as well as what we need to do with our sales channel.

So you’re right on, there is the point here the most important point was to have a successful study, to have the kind of data and support that we believe will support appropriate reimbursement within the market place.

Glenn Novarro - RBC Capital Markets

Okay. So primary endpoints were met secondary endpoints were met. Let me ask you just quickly on lower extremities you discussed losing some reps on the lower side. I guess the take away here is those positions have since been filled, and if that’s the case, have they been filled with experienced reps that you’ve taken from the competition without any limitations that can go in and immediately start approaching the hospitals that they’ve been selling too in the past?

Peter Arduini

I will say, Glenn, well first of all we’re pretty much all filled up. We’ve got a couple of areas that were moving some folks around but fundamentally we filled 85%, 90% of the gaps we had in Q2. And it’s s a mix I mean we’ve got some very experienced folks, we’ve got some new folks in. But what we’ve done is we’ve created what we call kind of a bullpen approach. We actually have some junior reps that work with senior reps in multiple territories.

So when territories come open we’re able to plug them in pretty quickly and so yes, when it comes to knowing the Integra portfolio, have sold the portfolio, understand our processes, the vast majority of people we plug in are already experienced within our systems

Operator

We’ll take our next question from David Lewis with Morgan Stanley.

Jon Demchick - Morgan Stanley

Hello, this is actually Jon Demchick for David. So I had a question for Glenn. I was hoping to get some clarification on the second half guidance that was mentioned at the end of your script. I’m trying to figure out if anything I guess changed on the expectation side for the third and fourth quarters outside of shifting some revenue lines, or if the commentary you offered was more a reflection that better than expected performance in 2Q driven from some gross margin, outperformance won’t necessarily translate into a second or to a stronger second half results.

Glenn Coleman

Jon, thanks for the question. Relative to our guidance and I’ll kind of comment first on Q3. We had a very strong second quarter and our gross margin did come in higher than we were expecting larger due to DuraSeal, DuraGen won’t having very good quarter for us which drives high margins for us and we’re not expecting that to continue as we get into Q3.

So, if you look at historically we’ve had sequentially sales that being flat and we’re expecting our margins to be down slightly. Having said that, we are expecting a pickup in our earnings in the third quarter and is predominately due to lower SG&A cost. I mentioned the DuraSeal transfer to our direct sales force, that’s going to create synergies for us at the call point with our customers when a process of eliminating the distributors we have in the US and we are expecting that to be pretty much phased out by end of August.

We also have some lower marketing expenses expected in the third and fourth quarter as we have some product launches in the first half of the year and SG&A in general being lower in the second half of the year with some cost containment efforts that we’re putting in place.

So, if we think about the sequential trending sales fly in Q3, margins down slightly, better pick up in earnings and I would kind of characterize the earnings pick up to be in the mid to high single digits, just to give you some context around sequentially how we see that playing out. And into the fourth quarter obviously a much deeper ramp into our full year. So, that’s kind of the way we see the second half playing out and really nothing fundamentally has changed other than this time the quarter is shaping out for us.

Jon Demchick - Morgan Stanley

And then Pete, I just had a quick follow-up. I mean I guess similar to some of the other questions that were already asked on DFU, but maybe I didn’t quite get it through to me, but was trying to figure out if the commentary you had given on the call was saying that you did hit the primary and secondary end points? You expected the primary end points and the secondary end points or you think the data is positive, but you haven’t had a chance to I guess delve all the way in their yet I’m just trying to figure out, what's like to take away from the trial.

Peter Arduini

Jon, I think we obviously want to be forthright but also appropriately careful and conservative in how we comment. Our statistician outside resources we look at it our confidence that we kind of achieve what we want to achieve and the endpoints is very high. Obviously that has to be agreed on by respective government agencies as they review those studies. But from our analysis of our study, our CRO and assistance, yes, we feel quite good that we've achieved the endpoints that we've outlined with the end of the study.

Operator

We'll take our next question from Daniel Zulauf, Barclays.

Daniel Zulauf – Barclays

I wanted to just ask the follow-up on margins, so obviously very strong improvement year-over-year in terms of 28 basis points, can you help us bridge how much of that was a mix, how much of it was cycling out of remediation? And really to the comment, about potentially not maintain those margin is that really mainly because of mix shift, I think you mentioned DuraGen and skin wound or what I am trying to get at is what from that improvement is sustainable versus what isn’t?

Peter Arduini

Let me -- I’ll comment on that, Glenn can fill in some, of course, obviously and Glenn discussed this in his prepared comments, many of you remember last year this quarter we were in the midst of -- in our recall, we were actually down about 20 points of share at this point within DuraGen many of our question obviously in the following quarters we’re discussing that, at this point in time we believe we pretty much called back all of that share and are on the current run rate, of where we were pre that recall, which I think is, it’s a great success for our sales team and being able to achieve that.

And really the synergistic value of our neurosurgery product line, that been said there’s still a good chunk of recovery within the second quarter to get back to that level. So that’s some of that ongoing -- some of that onetime benefit. However, between DuraSeal, DuraGen and skin three strong products all of that had very, very good performances in this quarter, it’s not to say we don’t see that continued good performance just not at the same level as we achieved within Q2. And in particularly the outliner is DuraGen because this was pretty much our recovery window quarter-over-quarter.

I don't know Glenn, if you want to add a little bit more detail than that.

Glenn Coleman

Yes. So when you look at the second quarter obviously we think most of the margin beat and improvement was largely due to mix. What I would say is, no that we have favorable mix but we also saw some really good production utilization variances in our regenerative facilities. So when we look at DuraGen as an example [indiscernible] are very strong quarters relative to the manufacturing capacity there, so that helped to drive our margin performance as well. So it was kind of a double benefit, if you will. Going forward again, we expect to have strong margins in the back half of the year, but it’s not going to be the end of level we have used in Q2. So you should expect to see margins in the 65% to 66% range in both Q3 and Q4. And that will be largely driven by mix as we go forward.

Daniel Zulauf – Barclays

Thanks. It’s helpful. And then one follow-up on extremity, can you just talk about on how you see the breadth of the portfolio as you see today? And do you feel that you have what you need or is it more and you really need to act to the back to be competitive to maintain reps and I guess to get back to approaching your market growth?

Peter Arduini

It’s a good question. I think in general one of our big focus has been and with [indiscernible] coming onboard, he's brought some fresh eyes into the business as well as I think Bill Weber has done a very nice job with our kind of revamping our whole product development pipeline. And in particular we’ve been really refreshing a lot of our structures, our locking systems, plating systems, profiles, structures and our instrumentation. So I think there’s a big move and we actually have completed a reasonably large chunk of it this year of refresh and refreshing the line. I think, that’s the first job.

Second piece is clearly we’ve had an ankle product outside the United States, we haven’t had one inside the United States, I mentioned that at the Investor Day meeting but the focus an ankle for the United States which we believe is a 2016 event as well, will make some good progress on that with our different research and work. So that’s kind of the mix. I think there are some clear four foot products and things that we’re going to be adding into the bag. But the combination of the refresh, plus a few new larger products is what we believe will -- keep us quite competitive in that area.

I’d also say on lower (ph) one of our advantages, clearly going head-to-head with some of the bigger players within the segment, is when we can combine with general technologies with our metal implants. And so different tendon solutions, different types of -- even cases where you’ve got Charcot foot, you’ve got issues where you actually have skin healing and you can use Integra skin, you’re dealing with arch (ph) issues, the person may have diabetes or other related issues. Those are areas where we excel. And I think you’ll start to seeing this as well and we’re focused to create one of our brand around some of those areas to differentiate it, and this space [indiscernible] just gets a little bit more crowded.

Operator

We take our next question from Raj Denhoy with Jefferies.

Raj Denhoy – Jefferies

Wonder if I could ask about the revenue guidance for the year the 920 to 940, 10% to 12% I think you described it. How much are you assuming in there for required revenues from the DuraSeal product as well as currency?

Peter Arduini

So, Raj overall, I think we haven’t completely broken all that out, I think we can give you a flavor here for how we’re looking at what as far as DuraSeal looks like for the second half of the year. We see clearly for the revenue growth that our core organic growth in the second half of the year continues to pick up, I mean I would know it too, it's one of the interest things about [indiscernible] as well that actually within the quarter, when you compare it versus it’s last year’s performance, we actually had about a 20% growth and so. Our view that we can integrated in but continue to get some leverage out of that and then have some corresponding organic benefit with the rest of our portfolio is pretty high.

So, Glenn, I don’t know if you want to -- I think we called out anything relative to FX for the second half but may be something on how we take a look at the growth of profile.

Glenn Coleman

Relative to DuraSeal on a global basis we’re modeling about $65 million for the full year. As Pete mentioned, a lot of that is organic growth relative to year-over-year performance although we don’t characterize that since it’s an acquired business. So, that’s some respect in relative to the full year for DuraSeal.

Raj Denhoy – Jefferies

Okay, and really the base of the question I think the first half of the year, organic growth is still I think a tad below 4% and I think the guidance you laid out at the analyst meeting was 4, 5 to 7%. I realized that’s kind of a longer term target but if you kind of think about the pieces that allow you to get there with the skin product, the new product launch in 2016, what helps you accelerate prior to that, I mean is there a chance that you could pull the number from this 4% range into that 5 to 7% over the near term or do we really have to wait until 2016 and beyond some of these new products to hit?

Glenn Coleman

So Raj, just to kind of reinforce the turning point. So, we talked about this year 4 to 6% overall growth rate and you are right first half has been 3, 4% I would point out that Q2 over Q1 were roughly 6% Q2 is quite a big step up over Q1 for the company but on the 4 to 6 we’re probably on the low end of the range of organic growth for 2014 but generally I’m okay with that, if you think about all the things we’ve got going on. Plans being actually consolidated, new ERP system in the company, integrating a new acquisition, consolidating divisions which we actually did with the quarter, all those items and still being able to drive within a 4 to 6% organic range I feel very good about. Now, what brings us into our longer term range of instead of 4 to 6, 5 to 7 really is getting some of those things behind us which we're on track to do beginning in ’15 and being able to put more and more energy on our growth in channel focus.

And so it’s a combination of new products, someone mentioned ankle acceleration of the shoulder obviously the DFU is in the outer range of that area but we also having a pipeline across the board within each of the products and that’s what gets us into that 5% range but realistically I think as we characterized 2014, we have a lot of moving parts, we're making good progress on those items and as we did those behind us, we are going to be to put more energy focus in generally dollars actually into front line selling efforts.

Raj Denhoy – Jefferies

Okay, that’s helpful and just some of that might be a few questions as well. I realize you guys are being purposely opaque in terms of the treatment effect you saw in the trial but if you look at some of the recent publications on some competitive products and there are pretty strong effects being shown by some of the other competitive products out there and I guess if you could at least help us understand how your think you are going to stack up competitively, will you show a 20, 25, 30 points improvement relative to control of that product and do you think you need that ultimately to be successful with that product?

Peter Arduini

So Raj, I appreciate the question. I’m obviously not going to go into kind of saying where we think we are versus competition but I will say this, we realized there is some great products out there, there is some very good data and we are going to have to have very competitive data to be one of those players. So, I think there's a lot of good solutions out in marketplace. That being said, we designed the study so that we would be in that path.

That’s one point I think the other aspect of it is the treatment cycle in diabetic foot ulcer is very different than a lot of other treatment areas clearly in the acute care area and in many cases some of these patients come back 10, 15, 16 weeks and there is a continual visit to the doctor, there is ongoing applications of product, there is a significant amount of cost for the system, we believe with some of the secondary end point data taking a look at those aspects of quality of actual closure as well as the cost and the amount of applications all those things together the Integra products are very, very well suited to in some cases be a very much differentiator but we’ve got a long way to go yet, again I’m just very excited, our team is excited about the quality of the study, feeding our dates, staying on track our timeline so that we are in good shape here for publication as well as the submissions but we believe that if we can get ongoing success as we’ve laid out then we'll have a very competitive product.

Operator

We’ll take our next question from Larry Eggleston, Wells Fargo.

Larry Eggleston - Wells Fargo

Congratulations on the DFU study. I will start with my DFU questions, another congratulations on CMS proposing to move you into the high cost bucket. Could you talk about Pete, I know it’s early your pricing strategy there or how you’re thinking about it given that the list price is meaningfully higher I believe than the high cost bucket of about $1,400 and then I had a follow up. Thanks.

Peter Arduini

Larry, it’s really early to talk about the pricing strategy since we don’t have any even filing at this point in time but I will just say this, we will be competitively priced. I mean the market will dictate the ultimate price. Again one of the interesting opportunities for Integra and this has been the hallmark of the company and our regenerative product lines is to create platforms that can support multiple products across the line. And so the DFU product being paced off a larger burn platform and regenerative template our cost structure and our scale is really second to none in the industry.

So as much as the initial federal registry data looks positive and we hope that that continues obviously there is no guarantee that that will continue in the future, but we believe that it should and most likely will. We also know that our cost structure as well as that coupled with compelling data is what’s really going to determine what prices you get the place.

So no other comments other than at this point in time knowing what the line up into the market place we feel good about where we are at this point in time.

Larry Eggleston - Wells Fargo

Thank you. And then given the expanded credit facility, how should we think about your M&A strategy going forward, does this mean that you have an appetite to do deals of a similar size to the DuraSeal acquisition or even larger, and can you talk about your thoughts on compared to divestitures in businesses which are subscale? Thanks.

Peter Arduini

So Larry let me comment and then I’ve had Jack really focused on a lot of M&A for us as well maybe add some comments here as well, but I would say this, obviously we took advantage of updating our capital opportunities here just the last few months get some good rates. We will position the company for a lot interesting tuck-ins and potentially some larger deals. We think the market is very, very active. We think that across our portfolio even ranging from instruments obviously in extremities world, but all of our businesses across the line there is quite a few opportunities for us to add into the portfolio.

So I think yes, you will see us do some deals here hopefully this year. We're looking at a lot of things, just one of my major focus is I think between the legacy that Stuart really created and Jack really grow, it’s been one of my person areas that spend a significant amount of energy on to really kind of capture and be able to kind go grow what Integra has built on which has been our M&A strategy and feel quite good about our pipeline.

When it comes to divestitures, we don’t have specific items keyed up. We clearly have opportunities in the portfolio. I had mentioned there are certain areas that aren’t measure targets right now for continued M&A activity, Spine is one of those that we don’t plan to necessarily go out and do a significant amount of acquisitions, we plan to focus on organically running that business. At the same time we talked about extremities and actually in our wound space growing scale as some of our target areas and in our M&A activity is really focused around that standpoint.

So anyhow maybe Jack, comment on a few things.

Jack Henneman

I'll say, the only thing I would add is, we are continuing and will continue our careful approach to acquisitions. We’ve always been careful about pricing, we’ve always been careful about due diligence, that formula have led to a very I think low risk approach in this area for us in times of great M&A for us there is always a lot of discussion about why don’t you do more deals right now? And the answer is we're kind of a whole lot of stuff but we’re maintaining all our traditions and I think our stockholders can count on that.

Larry Eggleston - Wells Fargo

Thanks Jack.

Peter Arduini

Obviously with Glenn and I that same tradition going forward is what we plan on carrying out and we’re very focused on deals that we know that in year two operationally we can get subsequent organic growth integrated to the company and I think that’s a really important aspect of how we think about M&A as well as core blocks and building out the company structure for the long run.

Operator

Our next question from Bob Hopkins with Bank of America.

Bob Hopkins - Bank of America

Good morning. One thing I don’t think we've touched much so far is your international growth in the quarter. You guys have obviously held out international growth as a major potential growth driver going forward. It looks like ex your acquisitions there wasn’t much growth this quarter.

Just want to get a better understanding of kind of what happened in the quarter internationally. And then should we expect international growth to rebound nicely in Q3 and Q4?

Peter Arduini

Yes, Bob it’s a good question. I would say the short answer is, fundamentally in line with how we thought things would play out. Yes, we do see acceleration in the second half of the year and as I mentioned before about kind of the lumpy nature we’ve been working through different country's registration strategies and plans, we actually have quite a few products that are coming up live in the second half of the year. So we see acceleration in international in the second half of the year, majority of it for this quarter was some DuraSeal acquisition, but we feel quite good about that. I alluded to the fact we brought on some new executives, brought on some new country managers, some first for us in the Asia-Pac markets, some new leadership down in Latin America and with some of those changes we’re also looking forward to seeing some continued growth in those markets.

Bob Hopkins - Bank of America

Great. And then two other quick things, one on extremities, I was wondering can you just give us a sense as to what the growth trends have been in the lower extremities hardware only portion of your business. And then I think you said it was slightly negative this quarter, just want to make sure I heard you right there. So I just want to get a sense as to trend what has been the trend and where was it specifically this quarter?

Peter Arduini

Yes. So, we didn’t give the specific number out, but in the quarter we were down within the quarter. We’ve actually had a trend of being roughly in the low-single digits in some cases being flat some of that mix, last year coming out of that year, we were in -- and for the most part in lower we were in the double digit range across the board. I think we’re still also but, trying to get our arms around where the market growth is, we’re still small guy there. We’ve seen reports that to move from low double digits into high single digits that kind of deals about right. But some of ours has been induce by, again the turnover within the portfolio. And we believe we got some of the right products coming into the mix and then some of the changes that we had in the channel. And so we’re keyed up we believe for some acceleration in the second half, but not at the same level that will obviously get us back to where we have thought we were at the beginning of the year. I would say though for lower longer term the ankle, the new foot systems bringing in some of our new locking and play structures is going to make a significantly more competitive in the market. And the last point is we are focusing on some regenerative solutions that specifically will help differentiate us in the lower.

Glenn Coleman

The only other thing I would add is we had a really strong second quarter last year in the lower extremities so year-over-year was a tough comp for us in terms of our lower extremities business, so just put that out there as well in terms of the year-over-year decline.

Bob Hopkins - Bank of America

And then just really quickly on gross margins in Q3, just curious as to why you think those will roll over a little bit relative to what we saw in Q2, I would assume that on the neurosurgery side some of your higher margin products will continue to expand. So just curious as to what drives the sequential decline there?

Peter Arduini

Sure, so it’s more of a portion of our instruments in international business coming up in the third quarter. So we’re still expecting to see pretty strong growth out of skin, DuraSeal and some of the products that drive our higher margins but when you look at the mix we are expecting to a higher concentration of sales coming from instruments in international which will drive the overall mix down slightly.

Operator

Next question from Jason Bedford with Raymond James.

Jason Bedford - Raymond James

Just a couple of quickies, realizing you had an easier year-over-year comparison given the recall on DuraGen can you just comment on growth in the quarter here and then what's the growth profile of this category going forward?

Peter Arduini

And you’re speaking specifically about DuraGen?

Jason Bedford - Raymond James

Correct.

Peter Arduini

Yes. Look the growth actually did quite well. I have Glenn take a look, I don't have the number right off hand, where we are on it. But specially we recovered and when we take a look at our daily run rates of actual volume on DuraGen and we take a look at where we left off pretty recall. We’re actually running at those levels so obviously that equates to us being back to the same share position that we were pre that market place. I think from a standpoint synergistic opportunities at the call point, we’re just starting to explore those with DuraSeal and DuraGen. I mean again as I think as we laid out with the acquisition there’s minimal overlap between the products that complement each other. And I think, the buzz of a new product it’s in the Dura closer space being able to help, claw back business within our DuraGen franchise I think obviously is quite well to our favor. Glenn you want to comment?

Glenn Coleman

Sure, so Jason year-over-year DuraGen was up double digits for us, so it did have a very strong quarter. Having said that I would also say that we are probably back to our pre-recall volume levels post recall. And I did that because when we look at our growth even versus 2012 second quarter we still have a nice growth even going back two years in DuraGen. So we think our volumes are back relative to DuraGen. And in addition the other businesses within our US neurosurgery business have done extremely well outside of DuraGen and DuraSeal. And just to give you the context around that we had organic growth of about 12% across our US neuro business. So the other businesses also showing very strong growth and we had a record quarter in neuro clinical care with the new monitors we introduced at the end of the fourth quarter. So that business is kind of hitting on all cylinders right now.

Jason Bedford - Raymond James

Okay. So once we're kind of lapping the recall or the impact of the recall is DuraGen kind of a high single digit grower going forward?

Peter Arduini

Yes. I think the question here is that within DuraGen we start moving back to more a market based levels which has been in the kind of mid-single digit performance is where we say it, obviously new indications and things of that nature can open that but the low to mid-single digit growth is kind of how we see the DuraGen playing out. I would say the upside to that, if there are more synergistic plays with the combination of the two products overtime DuraSeal, DuraGen we might go see that but I think it’s not realistic to think we’re going to see high single digit growth to continue within the DuraGen franchise but low to mid we is very much in line with how we look at the business.

Jason Bedford - Raymond James

Okay, that’s helpful and Glenn, just as a clarification, you mentioned mid to high single digit growth, was that in reference to the 2Q EPS, is that current increase in 3Q yet?

Glenn Coleman

Yes, so sequentially we are expecting our EPS to grow mid to high single digits from Q2 to Q3.

Jason Bedford - Raymond James

Okay, great.

Peter Arduini

But it's in the range of $0.72 to $0.74.

Jason Bedford - Raymond James

$0.72 to $0.74, okay, thank you.

Operator

We’ll take our next question from Steven Lichtman with Oppenheimer.

Steven Lichtman - Oppenheimer

Thank you. Hi, guys. Just on US Spine. Pete, at the analyst meeting you said you thought it was turning a corner and you did post an improvement here, is maintaining the full-year guidance despite the growth here in Q2 more of a reflection of more normalized comparables in the second half? Or is it conservatism? And maybe you can just give us overall sense of where you think you are in that US Spine business.

Peter Arduini

It’s a big corner Steve, we're making some good changes within that business. We feel pretty good about with our distribution and some of the new products. I think some of the things we talked about with our NanoMetalene product is doing well and are expandable interbody device which is coming out to the market. So, we’re cautiously optimistic that we’ll continue to have some improvements within that area. I would say in the segment though however as we report US Spine and other, that we see US Spine and other the whole category to be down in the second half.

And really the main driver of that is tied with private label. And if you recall last year a big chunk of the recall affected private label business. And you know a lot of that was recovered in the third quarter going into fourth quarter and as we talked about we'd actually discontinued and actually taken out some customer base. So, the segment overall is going to be slower but within that area between biologics as well as within the hardware business, we see that stabilizing in the second half of the year and actually outperforming obviously the first half from the standpoint of hardware and biologics.

Steven Lichtman - Oppenheimer

Got it and then just secondly on US Instruments, you have been proactively sun setting a lot of product lines, how much do you think that has taken off growth or will take off growth this year both for that business and overall and at the end of the day on the top line and looking forward is this a business that can accelerate as a result of the Affordable Care Act? You think more hospitals talk about a bump from ACA you are not seeing that yet is, is that potential opportunity in this business line?

Peter Arduini

Let me comment on ACA piece and then I’ll Glenn comment about the growth results. So, I would say at this point in time on the ACA, we’re not seeing at least from all three things reporting in any significant volume coming in yet. We still are seeing more of cautious approach to spending as hospitals look at how their mixes although we’re starting here potentially are there going to be seeing more patients in the second half.

In our view an instrument has been one of those areas that if you can wait a little bit longer before you actually do a larger new start maybe open up a surgery center something like that, we’ve actually seen that be a little bit more sluggish this year than in prior years. That being said, I would agree with your point I think as more patients come into the system either in a surgical outpatient center or in the hospital, we believe instruments will continue to be a steady drawer. It's obviously going to be correlated highly with patient -- with procedure volume and as you know beside outpatient volumes most of the inpatient volume that we’ve seen has been either flat or slightly down for the year. So, we believe that that trend changes, we’ll see our instruments business pick up relative to that. So, Glenn you want to hit the other point?

Glenn Coleman

Yes, so the discontinued product piece of this both in the second quarter and full year would have about a 1% impact on sales growth. So, if you look at instruments for the quarter down about 4% if you excluded discontinued products would have been down about 3% as an example. So -- and we are expecting that trend to be similar for the full year. So, it’s about 1% impact.

Operator

We’ll take our last question from Matt Miksic from Piper Jaffray.

Matt Miksic - Piper Jaffray

Good morning. Thanks for speaking me in here. So I just wanted to follow up on some of the questions some of the comments you made on Extremities and one follow-up on spine. So, I guess for -- I don’t know as long as we've been covering the company I think folks have been asking whether the large strategics were moving into your Extremities space and whether we should worry about that, and you now have three or four guys doing that. I think we probably ask the follow up question last year this time as to whether you’re seeing any pressure. And I wonder reps are certainly commodity in that space, good experience reps in foot and ankle. If you could provide any color as to what degree sort of M&A assets or product assets or what the climate is like for that and how you're responding to that?

And also maybe where your portfolio is? It's a new launch question but sort of fore foot hind foot and ankle, if there's pieces of that what do you think that by focusing you could sort of pick the growth back up in lower Extremities? And I have one follow-up.

Peter Arduini

So I would say look, I mean the fact is there is more competition within the space. Our focus has been to, how we can differentiate ourselves with a combination of regenerative solutions as well as metal. Obviously going head-to-head with like metal application systems is something that we necessarily want to do head-to-head with some of the large players coming into the market. That being said, we have refreshed our forefoot, mid foot and hind foot lines, we're in the process of getting all that done this year which is going to make us that much more competitive and ankle product coming out here in the next few years as well as some solutions on that ready to speak to right now that do combine a lot more in the lower extremities here is a combination of soft tissue as well as metal.

So that’s kind of how we take a look at what we can do across that portfolio. I would say from a sale standpoint, we’ve seen more activity obviously as people come in for cross recruiting but hasn’t been anything of major issue at this point in time.

I think as we’re growing and we’re reducing territory because there is more products in the bag, that’s been more of a challenge for us to make sure that actually as we grow we have the proper pipeline of folks. And I think the team now has the right plan in place to do that.

As far as assets in the spectrum of things that we do our shopping in from M&A clearly extremities is a pricier area than most other areas that we’re involved in. That being said, we think there is a reasonable amount of assets out there that fit into our M&A criteria and that are at probably at the right size to fill out our portfolio, there is quite a few that we’re actually in the process of looking at, thinking about as we speak right now.

So that’s kind of how I'd answer your current question. We expect the competition to increase, we don’t expect to be a full frontal attack, we expect the fact that our ability to ramp around regenerative with metal is what’s going to differentiate us and that’s really what’s going to go give us a competitive advantage in this space.

Matt Miksic - Piper Jaffray

That’s fair, that’s helpful. And then follow-up on spine I guess it’s been a tough area for a lot of folks and I guess the question is, what is it many of the companies that have some level of success whether they’re the market share leaders or whether some of these faster growing smaller companies have some elements that is helping to drive their growth whether it’s the new product or pace of new products, probably sort of positioned in bundling in sort of legacy market share position seems to help the larger players even though they’re not necessarily growing with the market.

What is it that you think will help you to get that moving absence acquisition activity, well what’s the it that's going to drive that business for Integra?

Peter Arduini

Yes, so there are two things, it really comes down to two things, Matt. One is selective new products and being products that bring out that are one of five folks as opposed to one of 20 folks. The two inner body devices I talked about are great examples, are expendable, will be one of two or three folks with that. And then the second thing is, is really utilizing our scale and enterprise selling to bring spine into institutions at very cost-effective solutions and to be able to package that with other offerings that we have. Those of the two approaches we see they’re going to help us make a difference in the spine area.

Operator

This does conclude today’s question-and-answer session. Mr. Arduini I’ll turn the conference back over to you for any additional or closing remarks.

Peter Arduini

Thank you everyone for joining the call for the second quarter and we look forward to seeing many of you on the road. Thank you.

Glenn Coleman

Thank you.

Operator

This does conclude today’s conference. Thank you for your participation.

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