Greatbatch, Inc. (GB)

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Greatbatch, Inc. (GB)

Q1 2014 Earnings Conference Call

April 30, 2014 17:00 ET

Executives

Betsy Cowell - Vice President, Finance and Treasurer

Thomas Hook - President and Chief Executive Officer

Michael Dinkins - Executive Vice President and Chief Financial Officer

Analysts

Charles Haff – Craig-Hallum

Julia Kufman - RBC Capital Markets

Matt Mishan - KeyBanc

Gregory Macosko - Montrose Advisors

Presentation

Operator

Welcome, everyone to the First Quarter 2014 Greatbatch Incorporated Conference Call. Before we begin, I would like to read the Safe Harbor statement. This presentation and our press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and involves 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 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 change in assumptions to the conference or unanticipated events or changes in future operating results, financial conditions, or prospects.

I would like to turn the call over to your host for today, Vice President, Finance and Treasurer, Betsy Cowell. Please go ahead.

Betsy Cowell - Vice President, Finance and Treasurer

Thank you, Brittany, and hello, everyone and thank you for joining us today for our first quarter 2014 earnings call. With us on the call are Thomas J. Hook, President and Chief Executive Officer and Michael Dinkins, Executive Vice President and Chief Financial Officer.

In terms of today’s agenda, Tom will start us off with an overview of the results of the first quarter, key accomplishments contributing to our financial performance and remarks on our product lines. Michael will then provide additional comments on the 2014 first quarter financial results and discuss our 2014 guidance. We will then open the call up to Q&A. As we have done in the past, we are including visual sides to accompany this presentation, which you can access on our website, www.greatbatch.com.

Now, let me turn the call over to Tom Hook.

Thomas Hook - President and Chief Executive Officer

Thank you, Betsy and good afternoon to all of you who are joining our call today. Today, we reported first quarter 2014 revenue of $174.3 million, a 17% organic constant currency sales growth. Three of our Greatbatch medical product lines, cardiac rhythm management neuromodulation, orthopedics and vascular delivered growth in excess of 20% for the quarter versus the first quarter 2013. I will talk more about the sales performance drivers later in the presentation.

Adjusted operating income increased 16% and diluted earnings per share totals $0.54, a 23% improvement when compared to the same period 2013. Cash flow from operations totaled $7 million versus the prior year usage of $7.6 million driven by our strong operating performance and improved asset management, principally inventory. We hold firm our commitment to improve shareholder return by growing the top line 5% organically and returning two times that amount to the bottom line.

Greatbatch has delivered year-over-year revenue growth for four consecutive quarters and adjusted diluted EPS growth seven consecutive quarters. We are creating and professionalizing the Greatbatch sales and marketing organization to a standard commensurate for the global Greatbatch operations and innovation organizations. Capable of studying markets intensively, driving prioritization of key technologies and product development and leading OEM customers of product solutions. This highly professional sales and marketing organization will drive a culture of new deals while simultaneously securing our core revenue. We are starting to see the benefit of these investments.

Our global operations have created a competitive advantage to minimize business risk. We maintain a culture of continuous improvement and a network of manufacturing sites that are tightly integrated into category teams and focused on delivering our objective have improved return on invested capital. Through volume and productivity initiatives, we have improved profitability in all product lines. We aligned our R&D organization closer to our markets, which accelerates execution and launch predictability. Enhanced project management tools and new reporting capabilities will optimize our product development process across all product lines. Today, we have in excess of 40 new product development projects in progress. We continue to efficiently move through the Algostim regulatory approval process and we believe we will be in a position to receive CE Mark in the second half of 2014 and PMA approval very early in 2015.

Now, I would like to provide some comments relative to our various product offerings. Cardiac rhythm management neuromodulation sales of $86.8 million were 23% higher than the $70.5 million in the comparable quarter 2013 and the revenue grew 2% in the sequential quarter-over-quarter comparisons. Several factors contributed to the strong first quarter performance. First and most importantly, we continue to see strong performance with our core product portfolio of batteries, capacitors, enclosures, feedthroughs and shield assemblies. We also benefited from successful customer product introductions leveraging our new technologies. We do believe some of our customers increased inventory levels, which we will monitor during the remainder of the year and we are comparing to a soft quarter in 2013.

On a rolling four-quarter basis, Greatbatch continues to see an upward trend. Our customers’ results through the most recent reporting period through the most recent reporting period have shown a similar trend in the comparable period. As most of our customers have yet to report quarterly earnings, we will continue to monitor the stability of the market. Our orthopedic product line sales of $36.4 million grew 20% on an organic constant currency basis versus the first quarter 2013 revenue of $29.6 million.

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