Tuesday, March 11, 2014

Integra LifeSciences Holdings Corporation

Integra LifeSciences Holdings Corporation released Q4 and FY 2013 Earnings Results, February 25, 2014. The fourth quarter ended with an EPS of $.078 and revenue of $220.76M. Integra missed consensus EPS estimates of $0.81 by $0.03 and revenue consensus of $223.38M by $2.6M. Fiscal Year revenues were $836.2M, representing a 0.6% year-over-year increase. Throughout 2013, Integra launched more than 20 new products in the US and filed for over 50 internationally. U.S. extremities were up 16% and global extremities up 13% versus 2012.

Management predicts the highest growth in their U.S. Neurosurgery revenue for 2014 with an increase 30-35%. Their other segments of revenue drivers, including U.S. instruments, U.S. Extremities, U.S. Spine, and international revenues are expected to increase low-single digits to mid-teens by the end of 2014. For the first few months of the fiscal year, Integra will be focused on a smooth integration of their recent acquisition of the DuraSeal product line into their U.S. Neuro and international segments in order to maximize growth potential, sales, and customer service. In addition, they plan to introduce a number of new products, which include an expandable interbody device, and several products to the wrist, foot, and ankle product lines. A main focus of research and development for Integra going forward is the shoulder market.  They just launched the beginning of their shoulder portfolio last month, which includes total, reverse, and Humeral plating solutions.  Integra also recently launched Titanium Bone Wedges, after receiving clearance from the FDA, as an addition to their foot and ankle portfolio.  This product is used in flatfoot correction procedures.

We hold our investment thesis and expect the international sales and new product development to be drivers for Integra in 2014.  Their newly appointed Corporate Vice President and Chief Scientific Officer, Kenneth Burhop is focused on “developing and commercializing exciting new technologies in regenerative medicine.”  Management guidance puts GAAP gross margin between 61-63% and the adjusted gross margin to be between 64-65%, which is a 1.5 point improvement compared to the current year.  Due to the Medical Device Tax, Integra expects future tax rates to increase to 30-31%.  1Q2014 revenue is expected to be in the range of $210-$215M.  We have an updated 12M price target of $53.14, representing an 8.9% upside from the current price of $48.81.

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