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Greatbatch, Inc. (GB)
Annual Investor Analyst Seminar Conference Call
March 19, 2013, 01:00 pm ET
Thomas Hook - President & CEO
Mike Dinkins - Senior VP & CFO
Scott Drees - President Algostim LLC
Dan Kaiser - VP & CTO
Susan Bratton – President, Electrochem
Charles Croson - Sidoti & Company
Charles Haff - Craig-Hallum
Previous Statements by GB
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So welcome everybody. I hope you've all settled down. There's obviously some refreshment for those you are feel free to get up during the presentation and enjoy that. What you’ll see me walk through here today is a couple of very important messages that I want you to keep in mind before I go through all the slide presentations.
First and foremost we want to show you the strength of our core business. How we built the company and how we are growing it, and the second piece is we are going to highlight there's a lot of pent up demand for understanding of what our medical device projects are. We are going to highlight one product in particular called Algostim which is a marquee project for us that we've invested in over the past five years, and we are going to provide a lot of technical information with regards to Algostim.
If you came in you’ll actually have a chance to have seen a few of the pieces. We will provide a lot more information in the presentation here as well. And then Mike Dinkins is going to walk through some of information in terms of what it means to us financially.
Little cautionary statement here that I will be making some forward-looking statements in the presentation. Also from a disclaimer standpoint there are products that I will refer to particularly Algostim that have not been submitted yet to the FDA for clearance or approval. We will talk to them also in terms of where we are going with the technology and what our plans are as we move forward, but those products have not been cleared or approved by the FDA yet.
From a presentation standpoint the three amigos that will be here today and the only one with hair, it’s a unique qualifier for us. I'll walk through the beginning of the presentation on the core business. It’s been driven by the company over the last five to eight years. Mike Dinkins, our Chief Financial Officer will present with regards to the financials later on in the presentation and in the middle will be Scott Drees, who is the President of our Algostim LLC subsidiary. He will come up and specifically talk to Algostim.
As all of you kind of walk through not only the refreshment area, but also an area that highlighted some of the physical samples of the technologies as a company that we've developed at the component level which I'll talk about as well as the systems level for Algostim that Scott Drees will talk about.
We will also as the presentation today completes, open that area up and have one of our subject matter experts Dr. Norbert Kaula present more information on the programmer side of Algostim and have a little product demonstration for you as well. I'll walk through the presentation agenda as follows: I'll hit some key messages that I want you to keep in mind throughout this afternoon.
I'll talk to how we are going to grow organically in our business. Scott Drees will cover the commercialization of the Algostim product. We will take a short break, so everybody can recover a little bit for 10 minutes and then Mike Dinkins will come back up and walk us through the financials. We will have the executive leadership team come up and be available for any focused question-and-answer session before we adjourn and allowing everybody to go through the products showcase in more detail.
So you have to obviously in any investor presentation boil it down to the one slide. This is the one slide we will refer to it in several segments within the presentation or what do we want you to get out of this. First and foremost, we want you to understand we have a very strong foundational business. We built the business over the course of a decade through partnering with our OEM customers, embodying those partnerships in multi-year long-term agreements that drive our reputation for innovation and operational excellence.
If we don’t have a quality, reliability innovation and operating excellence customers won't sign those long-term agreements that have built that foundational business. Are we there in every product line yet? No. In our traditional product lines and cardiac we are very strong. We have done a very good job in vascular and a very good job in portable medical. We have work to do yet in orthopedics and I'll talk about that today. But we have a very strong foundational business.
We're going to walk through Mike Dinkins’s section of the presentation and we're going to try to give you more transparency on the strength of that foundational business that we feel is much stronger than has been historically appreciated. We're going to try to let you look down through how we've done over the course of time and where we project going forward in the future that separates the medical device investments from that core business. So we are going to take that core business and we're going to grow it.
We’ve made some targeted investments in sales and marketing at both the Greatbatch Medical and Electrochem level to bring in subject matter experts that are better DNA, from a sales and marketing perspective than Greatbatch has had historically. They are taking the product technologies that we have and the applications we have and they are pursuing adjacencies to grow the business model into complementary markets and also growing the business model with customers that we haven't historically served at our primary markets.
Greatbatch has made a lot of investments in innovation, made a lot of investments in manufacturing and operations. We've been laggards at investing in sales and marketing and with some external hires as well as some talent that we picked through the acquisition of a portable medical company MicroPower, we have dramatically improved the sales efficiency within the company and I am going to highlight that so you can get a better appreciation for how we are going to grow that core discrete product business.
Many of you’re here today just to hear about commercialization of medical device innovation specifically Algostim, which is what Scott Drees will walk through. We have spent 4 to 5 years of developing this platform. It's gone all the way from just the identification of what market we are going to go after to what device technology we wanted to pursue and how we wanted to pursue that product development, all the way through the complete system development, which is displayed out in the product showcase for you and will actually be turning on and demonstrating the actual hardware and software itself later on when the presentation completes.
What do those three pieces add up to, driving the profitable growth as a company. And the way we want to have you think about it is, we want you to think about the core business we have growing it and valuing that. We want you to think about the devices as an upside opportunity. A separate investment that’s going to leverage off our core capabilities, that’s going to drive future value of the overall franchise.
So our matter inside is top-line, bottom-line, pipeline. We are innovators at the core, we’ve done a very good job of generating unique ideas that we partner with OEM customers at the component and in the future the system level. So we are going to take that pipeline and we are going to push it down through to drive top line opportunities and precipitate twice amount of leverage of that in the bottom line, and we are obviously going to do that leveraging of the operations base that we have from an manufacturing, efficiency and a productivity standpoint and leverage of the capacity that we put in place to have more profitable growth by 2x factor from our top line.
We are targeting in the mid-single digits on the top line from an organic perspective. I know many of you will ask and we will get to that we may enhance that or supplement that with some targeted acquisitions as the years roll out over the next several years. But organically we want to be able to grow at the mid-single digit rate from a component standpoint and we are going to enhance that through medical device sales, we are going to enhance that through the sale or through the inclusion of inorganic growth or with targeted acquisitions.
Where’s Greatbatch today? It is 646 million in 2012 timeframe of which almost 90% is tied to the medical device market. This is a bit of a shift. As Electrochem has grown over time through acquisition and organically, we have shifted the mix of this business to be predominantly a medical device oriented company, and we project that with a fast growth rate of portable medical, the growth rate in Greatbatch Medical as well as the growth rate of devices will continue to make Greatbatch more of a medical device centric company.
It’s not say in our energy market place that we are exiting energy. We are going to maintain those product lines, the very high reliability product lines that customers need from us, the technologies are close to the types of technologies that are used in medical, but we are not going to emphasize those in terms of our business strategy or our investor communication.
As we go forward we have strong customer relationships there, strong intellectual property protected product lines, and we’re going to focus on the medical device market in terms of opportunities.
So who are we and what do we sell? You will see our four fundamental medical device markets that we are targeting. We combine cardiac and neuromodulation together because the technologies that serve those markets for active implantable medical devices are very similar, and we sell them out to customers that are within those market places that have those businesses use similar technologies.
And since we have historically a very strong base in relationship in cardiac rhythm management and cardiac applications, we are leveraging that base in to neuromodulation and we are combining them together. Our next market that we are focusing on is orthopaedics and we are new entrants to orthopaedics in the 2008 timeframe, we diversified in to orthopaedics to take advantage of other implantable medical applications to give us a broader operating base as a company and we are very full service offering in that product line.
We do instruments, we do delivery systems and we do the implants themselves. We are heavily represented in the reconstructive market right now and less so in the other markets. I am going to go through in terms of orthopaedics what our position is during the presentation and I am going to also describe to you the opportunities we have in orthopaedics which are extensive.
Vascular, we have a focused view of the vascular market. We make some completed devices like steerable sheath as well as introducers. I will walk you through a few of those product opportunities and I am going to describe to you what opportunities in the vascular market we are targeting relative to where we are today.
And finally portable medical, we view that the portable medical market is very tightly aligned to the implantable medical market. As patients are being pushed outside of care centers and they are pursuing in the home based environment to becoming more mobile, especially with proclivity for mobile devices patients have more mobile needs in healthcare than they ever had before. And those mobile needs need portable power, and we view our selves as the experts in the portable power of that industry and tending to continue to peruse portable medical technology as an industry have done a very good job here and studying that initiative, the acquisition of micro power and its been a very best for us over the past year and we plan that being a good role for us into the future. So a little bit of clarification everybody is always asking what is portable medical? It is not something which goes in your body, it is something that you have outside of your body, it could be an oxygen concentrator, could be an external defibrillators and AED it hangs on the wall of airport or inside of a school. All of those medical devices are part active markets, it’s an expanding market in terms of application and we have even extended into power surgical tools which we think is a very attractive area as well.
So for us as a company while we have historically been implant to a medical focused, we are focusing also on the broader perspective including portable medical and we are noticing a connection virtually every implantable medical device needs a portable medical device to communicate and you will see the five external medical devices that the Algostim represents and there is five portable medical devices in that platform that we are leveraging our technology in to deliver that system solution to the market place.
To review the implantable medical and the portable medical is a very natural compliment as a company and we are pursuing those opportunities together as we move forward and focusing on both of them. From the standpoint of vision and strategy, you have seen this many times, the vision and the strategy is not change as a company. We want to be a definitive leader both at the component level as well as the device level and deliver the markets to those markets through innovation and operational excellence.
You will hear more about the investments we are making in commercialization that we have been investing in actively over the last year in particular as we move forward from our strategic deployment. But our strategic deployment even with those investments in sales and marketing is oriented at partnerships with the OEMs themselves.
Historically, we've partnered with OEMs and components; we've also done that with sub-assemblies. Now we are going to offer complete systems to enhance and deepen the partnership with OEMs as we move forward and grow. And it’s important that you understand that. It is that we will reiterate this as we go through Scott Drees’ slides and Mike Dinkins’ slides.
Our intention is to commercialize via those partnerships not around those partnerships. So sustainable organic growth, how are we going to grow as a company in these core product lines, how are we going to expand our discrete product offerings. I'm going to walk through this and then Scott Drees is going to come up and talk to how we are going to do that in the medical devices.