Integra LifeSciences (IART)

Medical device company Integra LifeSciences (NASDAQ:IART) fell short of the markets revenue expectations in Q3 CY2025, but sales rose 5.6% year on year to $402.1 million. Next quarter’s revenue guidance of $430 million underwhelmed, coming in 5.9% below analysts’ estimates. Its non-GAAP profit of $0.54 per share was 24.1% above analysts’ consensus estimates.

Company Overview

Founded in 1989 as a pioneer in regenerative medicine technology, Integra LifeSciences (NASDAQ:IART) develops and manufactures medical technologies for neurosurgery, wound care, and surgical reconstruction, including regenerative tissue products and surgical instruments.

The surgical equipment and consumables industry provides tools, devices, and disposable products essential for surgeries and medical procedures. These companies therefore benefit from relatively consistent demand, driven by the ongoing need for medical interventions, recurring revenue from consumables, and long-term contracts with hospitals and healthcare providers. However, the high costs of R&D and regulatory compliance, coupled with intense competition and pricing pressures from cost-conscious customers, can constrain profitability. Over the next few years, tailwinds include aging populations, which tend to need surgical interventions at higher rates. The increasing integration of AI and robotics into surgical procedures could also create opportunities for differentiation and innovation. However, the industry faces headwinds including potential supply chain vulnerabilities, evolving regulatory requirements, and more widespread efforts to make healthcare less costly.

Integra LifeSciences competes with several major medical technology companies, including Medtronic (NYSE:MDT), Stryker Corporation (NYSE:SYK), and Steris PLC (NYSE:STE) in its neurosurgical and surgical instrument markets. In the regenerative medicine and wound care segments, key competitors include Smith & Nephew (NYSE:SNN), Organogenesis (NASDAQ:ORGO), MiMedx Group (NASDAQ:MDXG), and Axogen (NASDAQ:AXGN).

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With just $1.64 billion in revenue over the past 12 months, Integra LifeSciences is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Integra LifeSciences grew its sales at a tepid 3.6% compounded annual growth rate. This was below our standard for the healthcare sector and is a tough starting point for our analysis.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Integra LifeSciences’s annualized revenue growth of 3.2% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak.

We can dig further into the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Integra LifeSciences’s organic revenue was flat. Because this number is lower than its two-year revenue growth, we can see that some mixture of acquisitions and foreign exchange rates boosted its headline results.

This quarter, Integra LifeSciences’s revenue grew by 5.6% year on year to $402.1 million, missing Wall Street’s estimates. Company management is currently guiding for a 2.9% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 4.8% over the next 12 months. Although this projection suggests its newer products and services will catalyze better top-line performance, it is still below average for the sector.

Integra LifeSciences has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 14.8%, higher than the broader healthcare sector.

Looking at the trend in its profitability, Integra LifeSciences’s operating margin decreased by 9.9 percentage points over the last five years. The company’s two-year trajectory also shows it failed to get its profitability back to the peak as its margin fell by 8.1 percentage points. This performance was poor no matter how you look at it - it shows its expenses were rising and it couldn’t pass those costs onto its customers.

In Q3, Integra LifeSciences generated an operating margin profit margin of 2.9%, down 3.7 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Integra LifeSciences’s flat EPS over the last five years was below its 3.6% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.

We can take a deeper look into Integra LifeSciences’s earnings to better understand the drivers of its performance. As we mentioned earlier, Integra LifeSciences’s operating margin declined by 9.9 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q3, Integra LifeSciences reported adjusted EPS of $0.54, up from $0.41 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Integra LifeSciences’s full-year EPS of $2.37 to grow 8.5%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Integra LifeSciences has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 8% over the last five years, slightly better than the broader healthcare sector.

Taking a step back, we can see that Integra LifeSciences’s margin dropped by 19.6 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

Integra LifeSciences’s free cash flow clocked in at $25.75 million in Q3, equivalent to a 6.4% margin. Its cash flow turned positive after being negative in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends are more important.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Integra LifeSciences historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 6.5%, somewhat low compared to the best healthcare companies that consistently pump out 20%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Integra LifeSciences’s ROIC averaged 4.3 percentage point decreases over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Integra LifeSciences reported $267.9 million of cash and $1.83 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $318.2 million of EBITDA over the last 12 months, we view Integra LifeSciences’s 4.9× net-debt-to-EBITDA ratio as safe. We also see its $45.66 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Integra LifeSciences beat analysts’ EPS expectations this quarter. On the other hand, its revenue guidance for next quarter missed and its revenue fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 4.4% to $14.75 immediately after reporting.

Updated: December 3, 2025 at 11:03 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Integra LifeSciences.

Integra LifeSciences falls short of our quality standards. For starters, its revenue growth was uninspiring over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its sturdy operating margins show it has disciplined cost controls, the downside is its cash profitability fell over the last five years. On top of that, its unimpressive EPS growth over the last five years shows it’s failed to produce meaningful profits for shareholders.

Integra LifeSciences’s P/E ratio based on the next 12 months is 5.5x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $15.50 on the company (compared to the current share price of $13.51).