Integra LifeSciences Holdings Corporation IART reported adjusted earnings per share (EPS) of 79 cents in the second quarter of 2015, up 16.2% year over year. Adjusted EPS also beat the Zacks Consensus Estimate by 8.2%.
Total Revenue
Total revenue in the reported quarter increased 5.5% to $244.1 million, comfortably beating the Zacks Consensus Estimate of $229 million. Organic sales growth in the second quarter was 5.1%, in line with the company’s guidance. Notably, this marked the third consecutive quarter exhibiting organic growth over 5%.
Excluding revenues from Spine on a continuing operation basis, first-half 2015 organic sales growth came in at roughly 8%. This positions Integra on a more sustainable quarterly progression trend through the second half of the year, with a projection of 6% organic growth for full year 2015.
In the second quarter, Integra observed strong growth in both specialty surgical solutions and orthopedics and tissue technologies. Regenerative product sales including dural repair, open wound and nerve were the primary drivers of organic growth in the quarter.
Segment Details
Revenues from the Specialty Surgical Solutions segment increased 6.7% year over year to $146.7 million on increased demand in both the U.S. and international markets. Global sales of dural repair products grew in line with the overall segment, reflecting stable utilization of products. Precision tools and instrument sales increased in low single digits, excluding MicroFrance. While MicroFrance performed in line with Integra’s expectations, sales in neural critical care and tissue ablation were slightly up at constant exchange rate or CER.
Revenues from the Orthopedics and Tissue Technologies segment climbed 10.1% to $63.8 million. Within this segment, sales from the regenerative technologies franchise increased in the high teens on the back of higher demand in the U.S. for Integra’s broad portfolio of skin, wound and nerve products. Upper extremities posted double-digit growth with increasing adoption of shoulder and new wrist arthroplasty products. However, sales in lower extremities were flat on a year-over-year basis.
Revenues from the Spine segment dropped 6.5% to $33.5 million in the reported quarter. While there were improvements in orthobiologics and international Spine sales year over year, these were more than offset by hardware declines in the U.S.
Margin Trends
Gross margin improved 214 basis points (bps) to 64.5% in the second quarter owing to higher organic sales.
Selling, general and administrative expenses spiked 9.8% to $126.6 million in the quarter, and research and development expenses increased 1.1% to $13.9 million. Adjusted operating margin (excluding amortization of intangible asset) improved 34 bps to 6.9%.
Financial Position
Integra Lifesciences exited the quarter with cash and cash equivalents of $131.3 million, compared to $72 million as of Dec 31, 2014. In the reported quarter, net cash flow from operating activities was $18.1 million, up 10.6% from the year-ago equivalent.
Free cash flow in the reported quarter was $5 million, representing a decline from the year-ago equivalent of $7 million.
Outlook
Based on the company's second-quarter results, the acquisition of TEI, and the completion of the SeaSpine spin-off, Integra has updated its full year 2015 guidance for continuing operations. The company currently expects full year 2015 revenues in the range of $870–$885 million (down from the previous guided $965–$980 million). The Zacks Consensus Estimate for revenues in 2015 is pegged at $934 million, significantly above the guided range.
The company now expects 2015 adjusted EPS in the band of $3.00–$3.10 (down from the previous range of $3.15–$3.33). The Zacks Consensus Estimate for adjusted EPS is pegged at $3.20, way above the company's guidance.
Our Take
We are impressed with Integra Lifesciences' second-quarter 2015 financial results which squarely beat the Zacks Consensus Estimate. Year-over-year growth on both fronts as well is indicative of the company's healthy growth via organic and inorganic means across all its segments.
Strong execution within Integra’s regenerative product lines, including dural repair and skin, made way for the better-than-expected second quarter results.
Although the company has trimmed its 2015 outlook, according to Integra, this updated guidance for 2015 continuing operations is consistent with the company’s prior expectations. The new guidance takes into account the removal of the Spine business for the full year, which is expected to have a dilutive impact of 20 cents on Integra’s adjusted EPS, and the slight accretion expected from the TEI acquisition.
However, we are concerned about the unfavorable foreign currency fluctuation that can considerably hamper Integra's financial performance in the coming quarters. We believe the company will successfully overcome these hurdles soon, backed by new product launches and an efficient management team.
Zacks Rank
Currently, Integra carries a Zacks Rank #4 (Sell). Some better-ranked med-biomed/generic stocks are Actelion Ltd. ALIOF, Gilead Sciences Inc. GILD and Heska Corp. HSKA. All the three stocks sport a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment