Greatbatch, Inc. (GB)
Q1 2013 Earnings Conference Call
April 25, 2013, 17:00 ET
Tom Mazza - VP & Corporate Controller
Thomas Hook - President & CEO
Michael Dinkins - Senior Vice President & CFO
Betsy Cowell - VP Finance and Treasurer
Charles Croson - Sidoti & Company
Charles Haff - Craig-Hallum
Glenn Novarro - RBC Capital Markets
Brooks West - Piper Jaffray
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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 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, Tom Mazza. Please proceed.
Thank you, Erica. Hello everyone and thank you for joining us today for our 2013 first quarter earnings call. With us on the call are Thomas J. Hook, President and Chief Executive Officer, and Michael Dinkins, Senior Vice President and Chief Financial Officer and Betsy Cowell, Vice President, Finance and Treasurer. Going forward, Betsy will be your contact for Investor Relations. Please join me in welcoming Betsy to the Greatbatch team.
In terms of today's agenda, Tom Hook will start off with a few brief comments regarding our first quarter results and provide an update of our strategic objectives. After that Michael will provide some additional comments on the first quarter performance including comments on our working capital and cash flow and confirm our 2013 guidance. We will open -- we will then open 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 www.greatbatch.com.
With that, let me turn the call over to Tom 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 first quarter. Adjusted diluted EPS increased $0.07 to $0.44 per share, which represents a 19% increase over the first quarter 2012. This improvement as well as our increase in adjusted operating income was fueled by our improved gross margins and continued focus for RD&E expenditures.
Michael will discuss our financial results in further detail later in the presentation, but you will notice the following significant improvements in our quarter-over-quarter performance. 340 basis points improvement in gross margin, continued focus net research, development and engineering spending resulting in a $2.8 million reduction and adjusted operating margin performance of 13%, up 320 basis points over the prior year.
For the quarter, adjusted EBITDA improved by $3 million to $28 million, which represents a 300 basis point improvement to 18.9%. As expected, our CapEx run rate is decreasing as most of our expenditures for plant consolidations are behind us now. CapEx was reduced by $3 million to approximately $7 million for the quarter.
Slide six outlines our first quarter organic growth by product line. On the next several slides we will discuss the quarter results and our outlook for the remaining part of the year. I would like to address our sales performance, where adjusting for that sale of our non-core orthopedic products, we saw a 4% sales decline year-over-year. We experienced lower volume in the cardiac, neuromodulation consistent with the underlying market.
Due to OEM focus on inventory levels, our first quarter order intake in that revenue was less than expected. For the remainder of the year we expect customer ordering patterns to normalize and we would also have new product launches that are deepening our relationship with our OEM customers to help us grow this product line faster than the underlying market.
Our vascular business was down $1 million year-over-year, again due to customer inventory adjustments. This business will be challenged throughout the year. As you know, we voluntarily recalled several vascular medical device products and we are diligently executing our plans to have these products back in the market in the second half of this year.
With regard to our orthopedics product line, after adjusting for the sale of certain non-core products, during the quarter of $4.2 million, this product line showed strong double-digit growth, which we feel will continue throughout the year. We also launched several new products specifically cases and trays in the quarter.
Turning to our Electrochem business, our portable medical business was slightly up 1% in the first quarter. We are experiencing continued strength from our fourth quarter product launch with one of our largest portable medical customers. We should mention that in the first quarter of last year, we had the upside of new product introductions. For the second half of the year, our customers are launching new products and redesigning existing products, which will accelerate our growth.
Rounding out Electrochem business, we were up against strong comparables in our energy, military and other product lines. We believe that some of the lighter customer demand was attributable to price increases announced in the fourth quarter 2012 with more customers buying forward.