Greatbatch, Inc. (GB)

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Greatbatch, Inc. (GB)

Q3 2008 Earnings Call Transcript

November 4, 2008 5:00 pm ET

Executives

Marco Benedetti – Corporate Controller

Thomas Hook – President and CEO

Thomas Mazza – SVP and CFO

Analysts

Jamar Ismail – Canaccord Adams

Tim Lee – Piper Jaffray

Keay Nakae – Collins Stewart

Assaf Guterman – Lazard Capital Markets

Stan Manne – Manne Family Investments

Presentation

Operator

Welcome everyone, to the third quarter Greatbatch Inc. conference call. Before we begin I would like to read the Safe Harbor statement. This presentation and our press release contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and involve a number of risks and uncertainties. These risks and uncertainties are described in the Company's annual report and Form 10-K.

These statements are based upon Greatbatch Incorporated's current expectations, and actual results could differ materially from those stated or implied. The Company assumes no obligations to update forward-looking information included in this conference call to reflect changed assumptions about the occurrence of unanticipated events or changes in future operating results, financial conditions or prospects.

I would like to now turn the call over to today's host, Corporate Controller, Marco Benedetti. Please proceed, sir.

Marco Benedetti

Thank you. On the call today are Thomas J. Hook, President and Chief Executive Officer, and Thomas J. Mazza, Senior Vice President and Chief Financial Officer.

In terms of today's agenda, Tom Hook will start by providing a few comments regarding our third quarter results and our major strategic initiatives. After that, Tom Mazza will provide a financial overview and further comment on the third quarter results. Afterwards we will then open up the floor to Q&A. As we have done in the past, we are including slide visuals that will go along with this presentation, which you can access on your Web site.

Let me now turn the call over to our President and Chief Executive Officer, Tom Hook.

Thomas Hook

Thank you, Marco. I would like to thank everyone listening for joining our third quarter earnings call. As you will note from this afternoon's release, we are very pleased with our financial results for the quarter.

Furthermore, this quarter provides additional evidence of our execution and progress on our long-term strategic initiatives, which include growing and diversifying our revenue base, driving improved operating performance, and delivering innovative solutions to our customer.

In the third quarter, we delivered solid revenue growth, with sales increasing 72% over the prior year period to $136 million. The benefits of our recent acquisitions were reflected in the diversification of our sales mix and our improved profitability. Our adjusted operating income grew to $19.3 million, an 84% increase over the previous year.

During the quarter, we also showed sequential improvement in our operating margins as we further streamlined operations and achieved efficiencies. We remain committed to ongoing improvements in our operating performance through continued facility consolidation, optimizing our production efficiency and product development activities, which are focused on high value added products. Tom Mazza will provide additional detail on our financial results later in the call.

Given the financial crisis that is currently impacting the global markets, I thought it was important to note that Greatbatch actively monitors its vendors, suppliers and customers for any adverse effects. To-date, we have not seen any significant impact to our suppliers’ ability to deliver materials or customers ordering patterns.

We are in solid financial position as a result of our strong cash flow from operations, access to over $100 million under our existing line of credit, and our decision in March 2007 to extend the maturity of our convertible notes and raise an additional $80 million in funds, which do not mature until 2013.

Based on our diversified product portfolio, our ongoing progress with our integration initiatives, and our ability to continue delivering innovative value-added products and solutions to our customers, we believe that Greatbatch is positioned well to withstand the turbulent markets.

One strategic initiative that we have been working on diligently over the last two years is the diversification of our business, while leveraging our core operational and product development strength. We believe this will significantly enhance our long-term growth and profitability. This diversification strategy has helped expand our opportunities within a variety of new markets.

As part of the acquisitions, we were able to add proprietary technologies and product lines to our portfolio of strategic manufacturing and product development capabilities. In addition, we expanded and diversified our global customer relationships.

While the acquisitions clearly diversified our customer base and reduced our customer concentration, it also created additional opportunities to sell a broader portfolio of products within those key accounts. Instead of simply selling to just the cardiac or the management sector within one of our customers, we can now sell to the orthopedics neuromodulation or therapy delivery divisions.

We have made great strides in diversifying Greatbatch and we will continue to integrate these new businesses and look for ways to drive both near-term and long-term revenue gains.

Another key strategic initiative is focused on streamlining our operational efficiencies and optimizing our production. The Greatbatch team has extensive experience in successfully optimizing and consolidating operations.

We have already identified and implemented several key programs to enhance the operating performance of our new businesses and move them closer to the Greatbatch operating model.

As evidenced by the substantial improvement in our operating margin this quarter, we have begun to realize several of the benefits immediately. We have approached this initiative on several different fronts, and I want to provide an overview of our plan over the next 24 months. First, let's review some of the consolidation initiative accomplishments in both our medical and commercial businesses.

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