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Greatbatch, Inc. (GB)

Q4 2012 Earnings Call

February 25, 2013, 05:00 pm ET


Tom Mazza - VP & Corporate Controller

Thomas J. Hook - President & CEO

Michael Dinkins - SVP & CFO


Julia Kufman - RBC Capital Markets

Charles Croson - Sidoti & Company

Brooks West - Piper Jaffray

Bruce Jackson - Northland Capital Markets

Charles Haff - Craig-Hallum



Good day ladies and gentlemen and welcome everyone to the Fourth Quarter 2012 Greatbatch, Incorporated 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 on Form 10-K. The statements are based upon Greatbatch, Incorporated’s comfort, current expectations and actual results could differ materially from those stated or implied. The company assumes no obligation to update forward-looking information included in this conference call to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results, financial conditions or prospects.

I would like to now turn the call over to today's host, Vice President and Corporate Controller, Mr. Tom Mazza. Please proceed sir.

Tom Mazza

Thank you. Hello everyone and thank you for joining us today for our 2012 fourth quarter earnings call. With us on the call today are, Thomas J. Hook, President and Chief Executive Officer, and Michael Dinkins, Senior Vice President and Chief Financial Officer.

In terms of today's agenda, Tom Hook will start off with a few brief comments regarding our fourth quarter results and will then provide an overview of our strategic focus going forward. After that Michael will review our financial results and 2013 guidance in more detail. We will then open up the call to Q&A. As we have done in the past, we are including slide visuals that go along with this presentation which you can access on our website at

With that let me now turn the call over to Tom Hook.

Thomas J. Hook

Thank you, Tom and welcome to all of you who are listening on our call today. We are pleased to be able to share with you our results for the fourth quarter which was a strong quarter for us. During the quarter, we were able to achieve a 36% increase in adjusted diluted earnings per share to $0.53. This increase was fueled by our revenue growth due to our acquisitions and reduced RD&E expenditures. Sales increased 12% over the prior year as a 2% organic constant currency decline was offset by additional revenue from our acquisitions of Micro Power in December of 2011 and Neuro Nexus in February 2012.

The first year performance of our Micro Power acquisition has met or exceeded our initial expectations on almost every financial measure, including revenue where the proforma organic growth is 38% and driving an accretion of our earnings per share. Michael will discuss our financial results in further detail later in the presentation, but you will notice the following improvements in our quarter-over-quarter performance.

A 110 basis point improvement in gross margin, reduced net RD&E expenses by 13% despite incremental spend related to the acquisitions, adjusted operating margin performance of 13.3%, which is up 220 basis points over the prior year.

As shown on slide six, there are two key things we want everyone on the call to understand about Greatbatch. First and most importantly, our core business is well positioned because OEM customers leverage our portfolio of intellectual property and have entered into long-term manufacturing agreements which secure our core business revenue stream.

Second, we are building a healthy pipeline of opportunities as we work with our OEM customers on projects. Additionally, we are enhancing our sales and marketing capabilities to take our existing portfolio of intellectual property and manufacturing excellence to new customers and new markets. Combined this with a stronger discipline to ensure we have adequate returns for all projects, we expect our bottomline performance will continue to improve.

As indicated in last quarter’s call, the top of the priority list is the completion of the consolidation of productivity initiatives and in particular the Swiss Orthopedic consolidation. These initiatives continue to impact GAAP financial performance and resulted in negative GAAP earnings for the quarter given the charges taken.

On slide seven, we have provided an update for you on the Swiss Orthopaedics consolidation. As of today, we have successfully completed new supplier certification for key customers and also reached a resolution on our lawsuit. We have successfully shipped product from our Mexico facility and now we are working on ramping up volume to meet customer demand. The Fort Wayne validation process is in progress and we are in good position to service our customers with some backlog that will clear up in second quarter. Our progress is consistent with the guidance we provided for 2013.

I would now like to devote the remainder of my prepared remarks to update you on the progress we are making towards achieving our strategic objectives. Our strategic focus is outlined on slide nine is as follows: To strengthen our core business. To sustain at least 5% core organic sales growth. To increase our earnings growth and to commercialize Algostim for additional upside. For the next few minutes I will spend some time on each of these key objectives.

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