Symmetry Medical Inc. ( SMA) Q3 2010 Earnings Call Transcript November 4, 2010 9:00 am ET Executives Carol Ruth – IR, The Ruth Group Brian Moore – President and CEO Fred Hite – SVP, CFO and IR Officer Analysts Matt Miksic – Piper Jaffray Matthew O'Brien – William Blair James Sidoti – Sidoti & Company Robert Dunne – Viscogliosi Brothers Presentation Operator
Factors that could cause or contribute to such differences include, but are not limited to, loss of one or more customers, the development of new products or product innovation by our competitors, product liability, changes in management, changes in conditions affecting 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 sections of the company’s most recent Annual Report on Form 10-K, 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 President and Chief Executive Officer, Brian Moore, I’d like to emphasize Symmetry Medical’s policy of not commenting or discussing individual customers or programs. Brian? Brian Moore Thank you, Carol and thank you everyone for joining us on our third quarter 2010 investor conference call. Revenue in the third quarter was ahead of our expectations, driven by strong product launch activity from our major OEM customers. Our implant and instrument businesses were essentially flat with the second quarter of 2010, as procedure growth continues in the low-single digits. Our case business achieved a significant dollar and percentage growth over the second quarter as we continue to benefit from increased volume in both the orthopedic and other medical devices markets. These additions combined with the growth from the other segments of our businesses resulted in overall revenue growth of 5% year-over-year and 3% sequentially. We are particularly pleased with order intake for the third quarter, which was up double digits as a percentage basis and greater than our third quarter sales. While we were pleased with the continued sequential top line growth, our cost of sales was higher than anticipated during the quarter, which contributed to low gross margin and lower bottom line results. And while we are disappointed, we have to incur these additional costs. They were necessary to assure that we continue to provide the high quality and timely service that our customers have come to expect from Symmetry.
These additional costs include several customer projects that involve complex development work, and Fred will provide additional details on the cost of sales in his remarks. But generally, we believe we are back on track for return to margin expansion and expect to achieve our best quarter of the year for the top and bottom line in the fourth quarter. This will include revenue in the range of $95 million to $99 million and this guidance is based on our current backlog combined with the shipments of large quantities for recently launched customer products that we began producing in the third quarter.We do expect to achieve improved profitability in the fourth quarter with EPS in the range of $0.14 to $0.18, as we leverage our increased operational efficiency and again start growing revenue base. We see the financial and operating results in Q3 as indicative of a shift in marketplace. Customer demand for quality and regulatory support and services continues to increase, driven by a more involved FDA. And this has resulted in less flexibility and adding costs in addition to the constant pressure on pricing and the need to use global resources to be competitive in the market. This has resulted in our customers paying closer attention to their inventory and procurement practices, which leads to an emphasis on smaller product purchase. We see this changing environment is playing into the Symmetry business model and our investment in quality and regulatory resources during the year has positioned us to offer competitive prices and leveraging our existing facilities, including operations in Malaysia and Ireland. A new and innovative feature in our service offering, which we will believe will gain momentum is developing and manufacturing products for targeted markets with appropriate price points. And our strategy is to leverage our expertise in Malaysia for our Japanese customer in co-development and marketing to attract a wider OEM customer base. Read the rest of this transcript for free on seekingalpha.com