Greatbatch, Inc. (NYSE:GB) Q3 2016 Earnings Conference Call - Final Transcript

Oct 27, 2016 • 05:00 pm ET

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Greatbatch, Inc. (NYSE:GB) Q3 2016 Earnings Conference Call - Final Transcript

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Presentation
Executive
Tom Hook

results, let me acknowledge up front that we clearly have work to do in order to further stabilize our business and bring us back to predictable revenue growth. As we have discussed in prior quarters, our business has been impacted by headwinds resulting from declining cardiac rhythm management revenues driven by customer changing programs and maturing market conditions, and also the downturn of the energy market.

As we work closely with our customers and deepen those relationships, we feel we have established a better line of sight to our customers' programs, demand plans, and growth objectives, which will help us better manage our business and product line forecasts. We are laser-focused internally on improving our operational processes to further support our long-term growth initiatives.

We are seeing improvements. Revenue is beginning to stabilize across our product lines and there are indications that the energy market has bottomed out and is poised for a slow recovery sometime in 2017. Operationally, we are making satisfactory progress. The Company-wide cost reduction programs we implemented last quarter are generating results, and we remain focused on aggressively improving our working capital. Our effort to reduce inventory levels is advancing, and we expect we will see continued progress in future quarters.

Additionally, we have successfully extended payment terms with many key supply chain partners. From a financial perspective, revenue is essentially flat year-over-year and on a sequential quarterly basis; good progress from the declines we saw during the first half of the year. We are seeing incremental quarterly improvements in our gross margin, and our total operating costs are declining, further demonstrating the success of our cost reduction efforts.

I would like to now turn the call over to Michael to discuss our third-quarter results in more detail, and our outlook for the remainder of the year. I will be back later to discuss our product line results and our strategic growth initiatives.

Michael?

Executive
Michael Dinkins

Thanks, Tom, and good afternoon, everyone. I'm going to take you through our financial results, balance sheet metrics, and a discussion of our updated full-year guidance. As you heard from Tom, we have made progress both operationally and financially to stabilize our business, and this is reflected in our third quarter results.

Sales in the third quarter of 2016 were essentially flat, at $347 million, compared with $348 million in the prior year and in the second quarter of 2016. This is a significant improvement compared to the year-over-year and quarter-over-quarter declines we saw during the first half of the year. Foreign currency exchange rates did not materially impact sales in comparison to the prior year and third quarter. Gross margin of 28.3% remained steady as well, comparing flat to prior year, and a 70 basis point improvement compared to 27.6% in the second quarter of 2016.

Our efforts to reduce costs, drive integration synergies, and focus on operating efficiencies are generating results. Operating expenses as a percentage of sales are down 360 basis points from the prior-year quarter to 17.6%, and