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Symmetry Medical Inc. (SMA)

Q4 2013 Earnings Conference Call

February 20, 2014 08:00 AM ET

Executives

Carol Ruth - IR

Tom Sullivan - President and CEO

Fred Hite - SVP and CFO

Analyst

Matthew O'Brien - William Blair

Matt Miksic - Piper Jaffray

Jim Sidoti - Sidoti & Company

Presentation

Operator

Welcome to the Fourth Quarter 2013 Conference Call. My name is Paulette, 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’ll now turn the call over to Carol Ruth. Carol 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 fact, 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 expectation. Factors that could cause or contribute to such differences include but are 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 effecting 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 section of the Company’s most recent Annual Report on Form 10K 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 discussing individual customers or programs. Tom?

Tom Sullivan

Thank you, Carol, and thank you everyone for joining us today for Symmetry Medical’s fourth quarter and full-year 2013 Conference Call. While 2013 was a challenging year for Symmetry, I’m encouraged with the progress we made in several areas of the business, and I’m looking forward to the opportunities we have ahead of us in 2014.

During the fourth quarter we achieved modest sequential improvement in both revenue and as adjusted EPS as we continue to execute on our long-term growth and profitability strategy, we are also focusing on two of the unexpected factors that arose during the third quarter; the operational issues at Clamonta Ltd, and the fire at our Sheffield manufacturing plant.

We have stabilized these situations and are implementing actions to improve results at Clamonta, and to increase throughput in temporary asset shop at Sheffield, while moving forward with plans to build a permanent replacement at the site. Outside of these two issues, we made good progress in improving OEM solutions efficiency and in Symmetry Surgical, had continued stability and we completed the transition process to our international distribution network. We closed the year by successfully amending our credit facility, enabling us to save $7 million annually through the elimination of our higher rate mezzanine debt.

I will begin today's call with a quick review of our results and 2014 guidance, followed by an operational update and key initiatives for 2014, including restoring growth in Symmetry Surgical, the ongoing implementation of the Symmetry business system. Total revenue for the fourth quarter was $101.2 million, down 5% year-over-year but up 3% sequentially. Excluding a onetime sale of $2.9 million in the fourth quarter of 2013, total revenue was down 2.4% versus year ago.

Revenue on our OEM Solutions business was up 1% year-over-year and 4% sequentially reflecting our efforts to progress the business against a backdrop but stable to improving orthopedic procedure volumes. This was offset by the operational issues we experienced at Clamonta, the delay of volume through our Sheffield facility as a result of the recovery from the fire at the asset shop and slower instrument sales. Including the impact of a Symmetry Surgical customer changing to direct purchases from OEM solutions, year-over-year revenue was down 1.8%.

Symmetry Surgical sales decreased 21% year-over-year. Excluding the impact of a former Symmetry Surgical customer changing to direct purchases from Symmetry Medical OEM solutions in 2013, Symmetry Surgical revenue was down 4.4% year-over-year. On a sequential basis Symmetry Surgical sales were up 1.4% as we terminated the final country specific transition services agreement and are now focused on ramping up our international distribution network.

Gross margin in the fourth quarter 2013 was 25.5%, compared to 27.1% in the fourth quarter of last year. The decrease in gross margin reflects a lower proportion of our revenue from our higher margin Symmetry Surgical business, the operational issues at Clamonta Limited, lower instrument revenue and OEM solutions customer cost reduction efforts, partially offset by the positive impact of the Symmetry Business System. Sequentially gross margin improved from 25.0% in the third quarter, driven by higher revenue and product mix as well as a diminished impact of the Clamonta operational issues and the Sheffield fire.

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