Symmetry Medical Inc (SMA)

SMA 
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Symmetry Medical Inc. (SMA)

Q4 2012 Earnings Conference Call

February 21, 2013, 08:00 AM ET

Executives

Thomas J. Sullivan - President and CEO

Fred L. Hite - SVP and CFO

Carol Ruth - IR, The Ruth Group

Analysts

Matt Miksic - Piper Jaffray

Matthew O'Brien - William Blair

James Sidoti - Sidoti & Company

James Terwilliger - The Benchmark Company

Presentation

Operator

Welcome to the Fourth Quarter 2012 Symmetry Medical Incorporated Earnings Conference Call. My name is Shawn and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Ms. Carol Ruth. Ms. Ruth, you may begin.

Carol Ruth

Thank you, operator. Joining us on the call are Tom Sullivan, President and Chief Executive Officer and Fred Hite, Senior Vice President and Chief Financial Officer.

Statements in this conference call regarding Symmetry Medical's business which are not historical facts may be forward-looking statements that involve risks and uncertainties within the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are predictive in nature and are frequently identified by the use of terms such as may, will, should, expect, believe, anticipate, plan, estimate, intend, and similar words indicating possible future expectations, events or actions. Such predictive statements are not guarantees of future performance, and actual results and outcomes could differ materially from our current expectations.

Factors that could cause or contribute to such differences include, but not limited to the loss of one or more customers, the development of new products or product innovations by our competitors, product liability, changes in management, changes in conditions affecting the economy, orthopedic device manufacturers, or the medical device industry in general and changes in government regulation of medical devices and third-party reimbursement practices.

We refer you to the risks in the forward-looking statements sections of the company's most recent Annual Report on Form 10-K, filed with the Securities and Exchange Commission, as well as the company's other filings with the SEC, which are available on the SEC's website at www.sec.gov.

Before turning the call over to Tom Sullivan, President and Chief Executive Officer, I'd like to emphasize Symmetry Medical's policy of not commenting or disclosing individual customers or a program. Tom?

Thomas J. Sullivan

Thank you, Carol. Good morning and thank you everyone for joining us today for Symmetry Medical's fourth quarter and full year 2012 conference call. One year ago, on our 2011 year-end conference call, I outlined the key strategic initiative to which Symmetry was committed to in 2012.

These included improving the gross margin in our OEM Solutions segment, integrating the Codman surgical instruments business into our Symmetry Surgical segment, commercializing a number of new products and delivering enhanced cash flow to significantly reduce our debt.

I'm pleased to report that we successfully executed on each of these initiatives over the course of the year putting us in a strong position to continue delivering improved results in both segments of our business. I will begin today's call with a quick review of the financial highlights for the fourth quarter and 2013 guidance, then provide an operational update.

Total revenue for the fourth quarter was $106.6 million, up 26% year-over-year and 6% sequentially. Revenue in our OEM Solutions business was up 7% year-over-year and 3% sequentially, reflecting the slight increase in procedural growth reported by our customers and relatively stable capital spending on instruments.

In our Symmetry Surgical segment, sales rose significantly compared to the prior year due to the Codman surgical instruments acquisition coupled with above-market organic growth of 10% excluding the impact of a large $2.9 million one-time year-end stocking order.

Gross margin for the fourth quarter 2012 was 27.1%, up from 16.4% in the fourth quarter of last year. The year-over-year gross margin improvement was driven primarily by a larger percentage of revenue from our Symmetry Surgical segment.

Gross margin also benefited from strength in our OEM Solutions gross margin, driven by increased leverage of overhead costs through higher sales, improvements in scrap and consumables and approximately 200 basis points of efficiencies resulting from the implementation of the Symmetry business system.

On a sequential basis, overall gross margins slipped 90 basis points as a result of product mix and the previously communicated impact of salary increases in September.

Our adjusted earnings per share was $0.17 and cash flow from operations for the quarter was $10.7 million. We reduced our total debt by $11.5 million in the quarter and our leverage ratio is now 3.3 times, down from 3.7 times at the end of last quarter and down a full turn versus year ago.

We are pleased with our success in improving gross margin and profitability and a significant reduction in our debt in 2012. As we look to 2013, we expect these trends to continue although at a slower pace with resulting EPS continuing to grow at a higher rate than revenue as we drive leverage in our infrastructure and further improve operating efficiency.

Accordingly, we are providing 2013 financial guidance of revenue in the range of $420 million to $440 million with year-on-year growth strengthening throughout the year from a base of flat to low-single digits in Q1. We believe underlying procedural growth rates for the full year to be in the 2% to 3% range, as adjusted EPS for 2013 is in the range of $0.64 to $0.76 per share which represents 12% to 33% bottom line growth.

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