Integra LifeSciences Holdings Corporation IART reported adjusted earnings per share (EPS) of 76 cents in the first quarter of 2015, up 33.3% year over year. Adjusted EPS also beat the Zacks Consensus Estimate by 20.6%. Even amid a difficult foreign exchange environment, the company registered year-over-year earnings growth on the back of better-than-expected revenue and profit.
However, including certain one-time items, the company reported net income of $8.4 million or 25 cents per share, reflecting a massive year-over-year improvement of 280.1% or 257.1%, respectively.
Total Revenue
Total revenue during the reported quarter increased 8.7% to $233.7 million, comfortably beating the Zacks Consensus Estimate of $230 million. Double-digit growth observed in Integra's global Dural Repair, Skin and Wound sales primarily benefited the top line in the quarter.
Organic revenue growth in the quarter was 7.3%, primarily driven by higher regenerative product sales. This marked the second quarter in a row with more than 5% growth in organic revenues, which also makes it the highest revenue earning quarter in the recent past.
Segment Details
With effect from the first quarter of 2015, the company is reporting its operations in three global business segments – Specialty Surgical Solutions, Orthopedic and Tissue Technologies and Spine.
Revenues from Specialty Surgical Solutions segment increased 10.1% year over year to $140.1 million. Within this segment, global sales from the Dual Repair franchise improved more than 20% on account of DuraSeal and sales in new markets in the international market. Precision Tools and Instrument sales increased in low single digits (excluding MicroFrance) while Neuro Critical Care sales rose in low double digits.
Revenues from Orthopedics and Tissue Technologies segment increased 12.4% to $61.4 million. Within this segment, sales from regenerative technologies franchise increased over 20% on the back of higher demand for Integra’s broad portfolio of skin and nerve products. Within upper extremities, shoulder and wrist sales also increased in double digits. However, sales in lower extremities declined on a year-over-year basis.
Revenues from the Spine segment dropped 3.1% to $32.2 million in the reported quarter. Within this segment, hardware sales declined in mid single digits, partially offset by roughly flat sales in orthobiologics.
Margin Trends
Gross margin improved 120 basis points (bps) to 62.9% in the first quarter owing to higher organic sales.
While selling, general and administrative expenses increased 5.3% to $114.1 million in the quarter, research and development expenses remained almost unchanged at $12.6 million. Adjusted operating margin (excluding amortization of intangible asset) improved 320 bps to 8.7%.
Financial Position
Integra Lifesciences exited the quarter with cash and cash equivalents of $79.9 million, compared to $72 million as of Dec 31, 2014. In the reported quarter, net cash flow from operating activities was $31.6 million, up 181% from the year-ago equivalent of $11.3 million.
Free cash flow in the reported quarter was $22.7 million, representing a huge improvement from the year ago free cash outflow of $0.1 million.
Outlook
Integra Lifesciences has raised its full-year 2015 outlook for both revenues and adjusted EPS. The company now expects full year 2015 revenues in the range of $965–$980 million, with annualized growth of 4–5.5% (up from the previous guided $960–$980 million representing sales growth of 3.5–5.5%). The Zacks Consensus Estimate for revenues in 2015 is pegged at $974 million, which lies within the company's guided range.
The company now expects 2015 adjusted EPS in the band of $3.15–$3.33 with annualized growth of 6–13% (up from the previous range of $3.05–$3.23 representing annualized growth of 3–9%). The Zacks Consensus Estimate for adjusted EPS is pegged at $3.19, within the company's guided range.
For second-quarter 2015, Integra Lifesciences expects revenues in the range of $240–$245 million, which assumes an organic growth rate of roughly 5%. The Zacks Consensus Estimate for revenues is pegged at $242 million, which lies within the company's guided range.
For the second quarter, Integra expects adjusted EPS to increase slightly on a sequential basis over the first quarter. The Zacks Consensus Estimate for adjusted EPS is pegged at 74 cents.
Meanwhile, management continues to expect the spin-off of the company’s spine and orthobiologics business into SeaSpine to be over in the second half of 2015.
Our Take
We are impressed with Integra Lifesciences' first-quarter 2015 financial results which squarely beat the Zacks Consensus Estimate. Year-over-year growth on both fronts is also indicative of the company's healthy growth via organic and inorganic means across all its segments.
Management believes strong execution within Integra’s regenerative product lines, including dural repair and skin, resulted in the better-than-expected first quarter results. Management is also upbeat about the company's acquisition of MetaSurg's foot and ankle product line last December, which performed on par with expectation. Currently, management expects its revenues to ramp up in the second half of 2015, owing to this buyout.
However, management is concerned about the unfavorable foreign currency fluctuation that can considerably hamper Integra's financial performance in the upcoming quarters. We believe the company will be successful in overcoming these difficulties soon, buoyed by new product launches and an efficient management team.
Zacks Rank
Currently, Integra carries a Zacks Rank #3 (Hold). Some better-ranked med-biomed/generic stocks are Biogen Inc. BIIB, BioMarin Pharmaceutical Inc. BMRN and Illumina Inc. ILMN. All the three stocks sport a Zacks Rank #1 (Strong Buy).
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