Integra LifeSciences (IART) reported EPS of 2 cents in the second quarter of fiscal 2011 compared with 50 cents in the year-ago quarter, down 96%. However, adjusted EPS (excluding one-time items) was 70 cents, which edged out the Zacks Consensus Estimate of 69 cents and was 2.9% higher than the year-ago quarter.
Total revenue during the quarter increased 8% year over year to $193.3 million. However, excluding the impact of currency exchange rates, revenues increased 6% from the year-ago quarter.
Integra registered sales growth across all its segments. Orthopedic sales increased 11% year over year to $80.5 million, Neurosurgery sales were $72.1 million, up 9% year over year and Instruments sales spiked 3% year over year to $39.5 million.
Integra witnessed a 5.6% year-over-year increase in gross profit to 120.4 million. However, gross margin contracted 158 basis points to 62.3% due to higher cost of products (up 12.9%). Operating expenses increased 25.6% to $112.4 million, primarily driven by a 28.9% rise in selling, general and administrative expenses to $95.7 million and 8.1% increase in research and development expenses to $12.7 million. This in turn resulted in a 970-bp drag in operating margin to 4.1%.
Integra exited the quarter with $137.3 million in cash and cash equivalents compared with $128.7 million at the end of December 2010. The company generated $25.0 million in cash flow from operations and incurred capital expenditures of $7.6 million cash in the quarter.
Additionally, the company established new terms under its $600 million credit facility, which decreased borrowing costs by 75 bps and extended the maturity period from August 10, 2015 to June 8, 2016. The company also issued $230 million of 1.625% convertible notes due December 2016. During the second quarter, Integra repurchased 1.1 million shares for $52.7 million.
Furthermore, in May 2011, Integra acquired California-based spine fusion product provider, SeaSpine, for $89 million in cash. With this acquisition, the combined orthobiologics product portfolio will emerge as the key component under Integra’s orthopedic revenue category.
Integra expects revenue contribution from SeaSpine to be $2−$3 million in the third quarter of fiscal 2011 and $18−$20 million in the second half of 2011. The company expects this acquisition to have a neutral impact on its 2011 adjusted EPS and a dilutive impact to its 2011 GAAP EPS.
Outlook
Integra updated its fiscal 2011 revenue and EPS guidance. The company expects to report adjusted EPS within the range of $2.92–$3.02 (previous guidance being $2.87-$3.02) on revenues of $785–$800 million ($765–$780 million). The Zacks Consensus Estimate for revenue and EPS are $783 million and $2.98, respectively.
Integra is a global leader in regenerative medicine. The company’s products are used primarily in neurosurgery, extremity reconstruction, orthopedics, and general surgery to treat millions of patients in the US, Europe and the Asia-Pacific every year.
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