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Integra (IART) Q3 Earnings Surpass Estimates, Margins Up

·5 min read

Integra LifeSciences Holdings Corporation IART delivered adjusted earnings per share (EPS) of 80 cents in the third quarter of 2020, up 17.6% from a year ago. The metric surpassed the Zacks Consensus Estimate by 40.4%.

The adjustment excludes the impact of certain non-recurring charges like structural optimization, acquisition and integration, COVID-19, and intangible asset amortization expenses, among others.

GAAP EPS for the third quarter was 38 cents, against the year-ago quarter’s loss per share of 32 cents.

Revenue Discussion

Total revenues in the reported quarter declined 2.3% year over year to $370.2 million. However, the metric exceeded the Zacks Consensus Estimate by 0.4%. Organically, revenues dropped 1.5% year over year.

Although revenues were lower during the third quarter, Integra recorded a 43.1% revenue increase on a sequential basis due to deferred or delayed surgical procedures during the second quarter.

Notably, despite the fall in revenues due to the pandemic-led impacts, it exceeded the high end of the company’s expectation of $368-$370 million which was provided along with the preliminary results announced earlier this month.

Integra LifeSciences Holdings Corporation Price, Consensus and EPS Surprise


Integra LifeSciences Holdings Corporation Price, Consensus and EPS Surprise
Integra LifeSciences Holdings Corporation Price, Consensus and EPS Surprise

Integra LifeSciences Holdings Corporation price-consensus-eps-surprise-chart | Integra LifeSciences Holdings Corporation Quote

Segmental Details

Coming to product categories, revenues from the Codman Specialty Surgical (“CSS”) segment fell 5.4% year over year on a reported basis to $239.3 million (organically, the decline was 4.2%). However, the segment’s global neurosurgery sales witnessed a strong recovery from the sequential decline in revenues. Also, sales in neuromonitoring and CSS management increased low-single digits. Despite lower sales in dural access and repair, a strong sequential recovery was observed in the United States.

International sales and CSS were down high-single digits in the reported quarter. Notably, growth in Japan and Canada was offset by slower recovery in the company’s indirect markets, including Latin America and parts of Greater Asia. However, the robust adoption of CUSA consumables, programmable valves and DuraGen boosted the top line.

Orthopedics and Tissue Technologies (“OTT”) revenues totaled $130.9 million in the third quarter, up 3.8% year over year on both reported and organic basis. Notably, sales in the United States demonstrated a stronger recovery and grew over 7%. Mid-single-digit year-over-year growth in sales of Integra skin, PriMatrix, Nerve and Amniotic tissue-based products were offset by year-over-year mid-teens decline in surgical reconstruction.

Margin Trend

In the reported quarter, gross profit totaled $235.4 million. Gross margin expanded 121 basis points (bps) to 63.6% despite a 0.4% fall in gross profit. Per the company, adjusted gross margin was 68.6%, up 160 bps.

Selling, general and administrative expenses contracted 13.3% to $150.1 million in the quarter under review, while research and development expenses rose 2.4% to $19.5 million.

Overall, adjusted operating profit was $65.9 million, up 48.5% year over year. Adjusted operating margin saw a 609-bps expansion year over year to 17.8%.

Financial Position

Integra exited the third quarter of 2020 with cash and cash equivalents of $396.3 million, up from $360.9 million at the end of the second quarter.

Cumulative net cash flow from operating activities at the end of the third quarter was $123.6 million compared with $142.2 million in the year-ago quarter.

2020 Outlook

Given the current economic situation due to the pandemic, Integra is unable to assess the magnitude of its impact on its financial results. Hence, the company has not provided any financial guidance for the year.

However, the company anticipated a further sequential revenue improvement in the fourth quarter, given that the pandemic does not worsen significantly. Further, the company does not expect the recovery rates for all its markets and product lines to be the same, thus leading to uncertainties about revenues.

Our Take

Integra exited the third quarter with better-than-expected results. The ongoing recovery within the company’s business looks encouraging. The sequential improvement in segmental revenues, along with revenue growth in the OTT segment in the third quarter, buoys optimism. Robust demand for the company’s products is also a positive. Expansion of both margins looks encouraging.

However, lower overall and CSS segment’s revenues due to coronavirus-led business disruptions is concerning. The company’s decision to not provide any financial guidance for the year is discouraging as well.

Zacks Rank and Key Picks

Integra currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader medical space are West Pharmaceutical Services, Inc. WST, Thermo Fisher Scientific Inc. TMO and Align Technology, Inc. ALGN.

West Pharmaceutical reported third-quarter 2020 adjusted EPS of $1.15, beating the Zacks Consensus Estimate by 13.9%. Net revenues of $548 million outpaced the consensus estimate by 7.2%. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Thermo Fisher, a Zacks Rank #2 company, reported third-quarter 2020 adjusted EPS of $5.63, beating the Zacks Consensus Estimate by 28.8%. Revenues of $8.52 billion outpaced the consensus mark by 10%.

Align Technology reported reported third-quarter 2020 adjusted EPS of $2.25, surpassing the Zacks Consensus Estimate by a stupendous 281.4%. Net revenues of $734.1 million exceeded the Zacks Consensus Estimate by 38%. It currently carries a Zacks Rank #2.

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Integra LifeSciences Holdings Corporation (IART) : Free Stock Analysis Report
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