Integra (IART) Third Quarter Earnings Top, Gross Margin Decline – October 27, 2022

Integra Life Sciences Holdings Corporation (IART Free Report) generated adjusted earnings per share (EPS) of 86 cents for the third quarter of 2022, flat year-over-year. The metric beat Zacks’ consensus estimate by 19.4%.

The adjustment excludes the impact of certain non-recurring charges such as structural optimization charges, acquisition, disposal and integration charges, intangible asset amortization charges and European regulation on medical devices, among others.

GAAP EPS for the third quarter was 60 cents, a significant increase of 17.6% from the prior year quarter.

Revenue discussion

Total revenue for the reported quarter fell 0.4% year over year to $385.2 million. The metric, however, beat Zacks’ consensus estimate by 1.9%. Organically, revenue increased 3.5% year over year. The quarter’s figure was within the company’s third-quarter sales estimate of $383 million to $391 million.

Details by segment

As far as product categories are concerned, the revenues of the Codman Specialty Surgery (CSS) were $249.8 million, reflecting a decline of 2.6%. Organically, revenue increased by 1.6% compared to the third quarter of 2021. During the quarter, the strength of advanced energy management and LCR was partially offset by the impact of the recall CereLink in neurological monitoring.

Tissue technologiesRevenue totaled $135.4 million in the third quarter, up 3.9% year over year on a reported basis and 7.2% on an organic basis. This improvement was driven by strong sales of Integra skin, amniotics and ACell MicroMatrix.

Margin trend

In the reported quarter, gross profit totaled $236.7 million, down 2.3% year-over-year. Gross margin contracted by 119 basis points (bps) to 61.5%. The company’s adjusted gross margin was 66.7%, marking a contraction of 160 basis points year-over-year.

Selling, general and administrative expenses decreased 7.8% to $143.8 million in the quarter under review, while research and development expenses decreased 4.2% to s set at $24.7 million.

Overall adjusted operating income reached $68.2 million, up 12.6% year-over-year. Adjusted operating margin increased 205 basis points year-over-year to 17.7%.

Financial situation

Integra ended the third quarter of 2022 with cash and cash equivalents of $511.9 million, compared to $447.2 million at the end of the second quarter.

Cumulative net cash flow from operating activities at the end of the third quarter was $179.1 million, compared to $243.2 million for the same period last year.

Updated guidance

The company updated its financial guidance for 2022 and provided the fourth quarter view.

For 2022, the revenue guidance remains in the middle of its guidance announced in August 2022 when the company reduced the revenue projection range from $1,551 million to $1,563 million (during the second quarter earnings call). quarter, the revenue forecast range was $1,557 million to $1,575 million). This suggests reported growth of around 0.5% to 1.3% (down from 1% to 2.1% announced in the Q2 earnings call). Zacks consensus estimate for the same is pegged at $1.56 billion.

Foreign exchange is now expected to have an adverse impact on reported growth in 2022 by 250 basis points compared to 2021. Integra has also tightened its organic growth guidance to a range of 3.7% to 4.5% (4 % to 5.2% previously).

The company expects to report adjusted earnings per share in the range of $3.29 to $3.33 for 2022 (a 15-cent increase at the midpoint from the company’s August guidance). The Zacks consensus estimate for the same is pegged at $3.15.

For the fourth quarter of 2022, Integra expects revenue of $391 million to $403 million, down 0.6% to 3.5% on a reported basis, but up 1.3% to 4.3% on a reported basis. an organic base. Zacks’ consensus estimate for the same is pegged at $402.5 million.

Adjusted earnings per share are estimated between 87 cents and 91 cents. The Zacks consensus estimate for the metric is pegged at 88 cents.

Our opinion

Integra ended the third quarter of 2022 with better than expected earnings and revenue. Year-over-year organic growth in the CSS and Tissue Technology segments is cause for optimism. During the quarter, while the company noticed a recovery in litigation volumes leading to solid growth across most of its product portfolio, it was more than offset by the impact of legal challenges, currency headwinds and ongoing supply issues. The impact of the CereLink recall during the quarter was significant.

Rising costs put pressure on the gross margin. The lackluster forecast for 2022 is also concerning.

Zacks ranking and key picks

Integra currently wears a Zacks rank #4 (sale).

Some top-ranked stocks in the broader medical field that have announced quarterly results are Elevance Health, Inc. (ELV free report), Medpace Holdings, Inc. (MEDP free report) and Precision (ARAY free report).

Elevance Health, carrying a Zacks rank of No. 2 (buy), reported adjusted EPS of $7.53 in the third quarter of 2022, which beat the Zacks consensus estimate by 6.1%. Revenue of $39.63 billion topped the consensus mark of 1.3%. You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Elevance Health has an earnings yield of 5.5% compared to the industry (2.3%). ELV’s earnings have exceeded estimates for the past four quarters, averaging 4.1%.

Medpace Holdings, having a Zacks rank of No. 1, reported adjusted EPS of $2.05 in the third quarter of 2022, which exceeded the Zacks consensus estimate by 39.5%. Revenue of $384 million topped the consensus mark of 8.1%.

Medpace Holdings has an estimated growth rate of 22.7% for 2022. MEDP earnings have exceeded estimates for the past four quarters, averaging 22.04%.

Accuray reported an adjusted loss per share of 4 cents in the fourth quarter of fiscal 2022, which beat Zacks’ consensus estimate by 33.3%. Fourth-quarter revenue of $110 million beat Zacks’ consensus estimate by 4.9%. He currently has a No. 2 Zacks rank.

Accuray has an estimated growth rate of 100% for fiscal 2023. ARAY’s earnings beat estimates in three of the last four quarters and lagged in one, with the average surprise being 20.8%.

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