Symmetry Medical's CEO Discusses Q2 2013 Results - Earnings Call Transcript

Aug. 1.13 | About: Symmetry Medical (SMA)

Symmetry Medical Inc. (NYSE:SMA)

Q2 2013 Earnings Call

August 01, 2013 08:00 AM ET


Carol Ruth - IR

Tom Sullivan - President and CEO

Fred Hite - SVP and CFO


Matt Miksic - Piper Jaffray

Kayla Crum - William Blair

Jim Sidoti - Sidoti & Company


Welcome to the Second Quarter, 2013 Symmetry Medical Incorporated Earnings Conference Call. My name is Cliff and I will be your operator today. 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 will now like to turn the call over to Ms. Carol Ruth. Ms. Ruth, you may begin.

Carol Ruth

Thank you, operator. Joining us on the call today 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 facts 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 expectations. 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 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 section 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

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

During the second quarter we continued our focus on our four key areas, with a special emphasis on two items. One stabilizing the integration issues at Symmetry Surgical and two, improving operational efficiency in the OEM solutions segment. We made good progress in both of these areas. Our financial results came in slightly ahead of our expectations primarily as a result of the timing of orders related to customer implant inventory in the OEM segment. We remain on track to achieve our updated guidance for the year; I will begin today's call with a quick review of the financial highlights for the second quarter and then provide an operational update.

Total revenue for the second quarter was $101.9 million, down 0.4% year-over-year, but up 3% sequentially. Reported revenue in our OEM solutions business was up 6% year-over-year and 4% sequentially. Sequential increase reflects the stable orthopedic procedural growth reported by our customers, higher implant sales driven by the timing of stocking orders and the inventory adjustments and some increased capital spending by customers on cases and instruments to support new product launches.

Excluding the impact of a former Symmetry Surgical customer to direct purchases from Symmetry Medical OEM solutions in 2013. OEM solutions revenue was up 4% year-over-year. Symmetry Surgical reported sales decreased 18% year-over-year against a strong second quarter in 2012. And as a result of the transition related sales disruptions that we discussed on last quarter's call.

On a sequential basis Symmetry Surgical sales were up slightly reflecting progress in the stabilization of the issues and the corrective actions we have implemented. Excluding the previously mentioned customer who moved to direct purchases from Symmetry Medical OEM solutions in 2013. Symmetry Surgical sales decreased 14% year-over-year.

Gross margin in the second quarter of 2013 was 26.1%, about flat but 26.2% in the second quarter of last year. The margin reflects the reduced contribution from Symmetry Surgical almost entirely offset by improvements in OEM solutions gross margin related to increased volume and the implementation of the Symmetry business system.

On a sequential basis, second quarter gross margin was up from 25.4% in the first quarter 2013, as a result of improved gross margin in OEM solutions. As adjusted EPS was $0.09, down from $0.14 in the same period last year, but up from $0.06 in the first quarter. This places us on the right trajectory for continued improvement in the second half. We generated $8.3 million in cash flow from operations during the quarter and reduced our debt by $8 million. And our leverage ratio ended at 3.35 times.

I would now like to provide some additional detail on the OEM solutions in Symmetry Surgical segments, beginning with OEM solutions. Sales in our OEM solutions business were up year-over-year sequentially, driven by growth in implants in cases. The 12% year-over-year and 8% sequential implant reflects the stable hip and knee procedure market as reported by our customers. We also saw some stocking orders and inventory adjustments by certain of our customers. We believe these purchases were the result of some fine tuning of inventory levels, following a prolonged period of conservative purchasing, we do not believe that they are indicative of a more positive outlook for procedural growth.

The case business was up 18% compared to the prior year, primarily driven by revenue associated with large new product launches and increased customer activity. On a sequential basis, cases were up 4% driven by some increased capital spending related to product launches. Instrument sales were down 1% compared to the prior year and relatively flat sequentially, reflecting a stabilized the less robust than we had expected at the beginning of the year capital spending environment.

Aerospace sales were down 9% year-over-year again particularly strong second quarter 2012 result. On a sequential basis, aerospace sales were up 3%. While we showed positive growth in the OEM segment during the quarter, several headwinds continue in this business. As communicated in June, orders have been weaker than anticipated as a result of lower than expected volume from large product launches, primarily in instruments.

We also see continued European market weakness and the OEM supplier rationalization opportunities we have been anticipating are not occurring as rapidly as expected. It is our goal to grow the business through market share gains and enhanced operating efficiencies in spite of these challenges.

The Symmetry business system implementation is on track to deliver the projected 100 to 200 basis point gross margin improvement in 2013. This includes the deployment of our company wide ERP platform, automated quality and regulatory assurance systems, lean manufacturing best practices and management protocols, designed to enhance overall operation efficiency.

Our U.S. case facility will upgrade to our company wide ERP platform in the third quarter and when this is complete all of our U.S. OEM solutions manufacturing facilities will be unified on a single ERP platform which will translate to more efficient material procurement, work flow, inventory management and resource allocation. Most importantly, the ERP platform, along with our other operational initiatives, will position Symmetry to gain incremental market share based on improved customer service, quality and collaborative abilities.

As I already highlighted we made continued progress at Symmetry Surgical to address the transition related issues that have impacted results through the first half of the year. As just previously announced we welcomed a new President to this segment this month and he will join me and working closely with the leadership team to build relationships with our global customers, strengthen our Symmetry Surgical brand and to drive operational performance to grow revenue.

In the second quarter, excluding the customers who transitioned to OEM solutions this years, 2013 domestic sales of $19.5 million were down 9% versus year ago but up 1% sequentially. International sales were $2.4 million and up 45% versus year ago but flat sequentially. To regain customer momentum and following the business transitions, we completed several actions during the second quarter. We harmonized the Symmetry Surgical U.S. sales force at the beginning of April and bolstered that with comprehensive training of our complete product portfolio.

We launched the first ever Symmetry Surgical product catalog, highlighting the significant breadth of our product portfolio to reinforce the customers that Symmetry Surgical is thus source for their trusted brands as general surgical instruments. While we continue to fine-tune our processes, we believe we have stabilized the business as evidenced by the slight sequential increase in sales in the second quarter.

Moving forward into the second half of the year, we expect our sales reps will capitalize on their smaller geographic territories and more frequent customer interaction to focus more of their time on building our brand and selling our broad portfolio, which should allow for gradual improvement in the back half of the year.

Outside the United States, we continue to work with our international distributor partners to transfer the required regulatory authorizations for the legacy Codman surgical instrument products and ramp up business with new and existing distributors. At quarter end, we have successfully transferred regulatory approvals for product labeled in legacy graphics in the vast majority of countries and are in the process of registering the new Symmetry Surgical labeling of these products in all countries as well. These processes are completed for Europe, North America, Japan, Australia, and part of Asia, the Middle East, Central America and South America. Additionally, we are now working on a similar process for the former SSI and product lines, which previously had only been in very limited OUS distribution in order to provide our distributors the ability to sell our comprehensive product portfolio. These processes must be managed on a country by country and product specific basis to take considerable time which will impact the ability of our international business to grow during 2013.

During the quarter, we welcome many of our international distributors to a global training session and provided them with our first ever comprehensive catalog to help them bring Symmetry Surgical to life in their marketplaces. We also opened our global supply chain and international customer service center in Schaffhausen, Switzerland to strengthen our relationships with our international distributors. Longer term, we expect this investment in our other efforts to help us regain our momentum in international markets which are critical to our long term growth strategy.

Similar to the OEM solutions segment, we believe that the Symmetry Surgical business is also operating in an environment with temporary headwinds to market growth. During the first quarter and continuing into the second, we saw (Audio Gap) trend of flat to negative general surgical procedure rates in the U.S. and Europe. This trend has been highlighted in the industry survey reports commented by large medical device companies and as reported by public hospital companies. This negative growth was another contributing factor that led us to revise our forecast for Symmetry Surgical segment in early June.

Overall, we believe our corrective actions are having a positive impact on the Symmetry Surgical business. Though continuing (Audio Gap) are required to fully address the challenges. We expect continued pressure in this business for the remainder of 2013 and we’ll be looking closely at realizing cost efficiencies post integration to improve profitability. That said, we are encouraged that we are now on track of improved execution to grow the business.

With that, I would now like to turn the call over to our Chief Financial Officer, Fred Hite for his financial review. Fred?

Fred Hite

Thanks Tom. Total revenue for the second quarter 2013 was $101.9 million compared to $102.3 million in the same period of 2012. The year-over-year revenue change was driven by lower sales in the company’s Symmetry Surgical segment which came in at $22.3 million in the second quarter of 2013 compared to $27.3 million in the second quarter of 2012. This was offset by 6.1% growth in the company’s OEM solutions segment which came in at $79.6 million in the second quarter of 2013 compared to $75.0 million in the second quarter of 2012.

Foreign currency exchange rates had a negative impact of approximately $200,000 on a year-over-year revenue comparison. On a sequential basis, total revenue was up 3.1% compared to the first quarter of 2013, with OEM solutions revenue up 3.8% and Symmetry Surgical revenue up 0.6% compared to the first quarter of 2013. The sequential growth includes approximately $300,000 of unfavorable foreign exchange impact.

Second quarter 2013 revenue in the OEM solutions segment, by category, was as follows. Instruments revenue is $28.1 million compared to $28.5 million in the same period last year. The slight decrease in instrument revenue in the second quarter 2013 reflects stable capital purchasing against the backdrop of less than expected benefit from the large new product launches and slower supplier rationalization efforts. On a sequential basis instrumental revenue was down 0.3% compared to the first quarter of 2013.

Implant revenue is $28.1 million compared to $25.1 million in the same period last year, up 12.3%. Implant revenue was up 8.4% compared to the first quarter of 2013. The year-over-year and sequentially increases were driven by stable procedure growth and a benefit from the timing of stocking orders and inventory adjustments by certain customers.

Case revenue was $17.1 million compared to $14.5 million in the same period last year, up 17.8%. The year-over-year increase in case revenue is driven by new product launch related to volume and increased customer activity. Case revenue was up 4.3% compared to the first quarter of 2013, driven by new product launch related volumes.

Other revenue was $6.3 million, down 9.1% as compared to $6.9 million in the same period last year but up 2.7% compared to the first quarter of 2013. Symmetry Surgical revenue was $22.3 million, down 18.2% compared to $27.3 million in the same period last year. The year-over-year decrease was primarily due to the transition related sales disruption with certain U.S. customers and transitions to distributors in the rest of the world.

On a sequential basis, Symmetry Surgical revenue was up 0.6% compared to $22.2 million in the first quarter of 2013, reflecting a stabilization of our business driven by the corrective measures we instituted in the second quarter. Excluding the OEM customer who moved to direct purchases from Symmetry Surgical OEM solutions in 2013, Symmetry Surgical sales decreased 14% year-over-year.

Our largest customer accounted for 31% of our second quarter 2013 revenue and our largest customer account for 29% of our second quarter 2012 revenue, excluding the Codman related transitional services agreement.

Gross profit for the second quarter 2013 was $26.6 million compared to $26.8 million in the second quarter 2012. Gross margin percentage for the second quarter of 2013 was 26.1% compared to 26.2% from the second quarter of 2012. The gross margin was driven by lower percentage of revenue from our higher margin Symmetry Surgical business as compared to the same period last year. This was offset by strength in the OEM solutions gross margin, which is primarily driven by increased volume and efficiencies resulting from the Symmetry business system.

On a sequential basis, gross margin increased from 25.4% reflecting improved gross margin in the OEM solutions segment. Increases were partially offset by the reduction of… Selling, general and administrative expenses in the second quarter 2013 were $17.9 million compared to $17.5 million in the same period last year. The increase in selling, general and administrative expenses in the second quarter 2013 were primarily due to the increased infrastructure cost in the Symmetry Surgical segment of approximately $600,000, increased healthcare cost of $600,000 and $200,000 for the medical device tax. These increases were partially offset by the reduction of $700,000 in performance based stock compensation expense, $300,000 in legal entity restructuring cost and $200,000 in amortization expenses. Operating income for the second quarter 2013 was $6.7 million compared to $8.1 million in the same period last year. Operating margin for the second quarter 2013 was 6.6%, compared to 7.9 in the same period last year.

Other expenses primarily realized and unrealized foreign exchange was $400,000 of expense in the second quarter 2013, as compared to a favorable $100,000 in the same period last year, and a favorable $300,000 in the first quarter of 2013.

Excluding stock compensation expense, legal entity restructuring cost amortization of intangible assets, acquisition related costs, management transition costs, SEC related legal costs and facility closures and severance operating income for the second quarter 2013 was 9.7 million, compared to $12.1 million in the same period last year.

Income taxes for the second quarter 2013 were $500,000 compared to $1.6 million in the year ago period, driven by the increase in pretax income. Net income for the second quarter 2013 was $1.2 million or $0.03 per share, compared to net income of $1.6 million or $0.05 per diluted share in the same period last year. On an as adjusted basis net income for the second quarter 2013 was $3.5 million or $0.09 per diluted share, compared to $0.14 per diluted share last year, and $0.06 in the first quarter.

I will like to refer you to our press release issued this morning for a reconciliation of the GAAP to as adjusted amounts. Earnings per share for the second quarter 2013 reflected a weighted average number of $36,842,954 diluted shares outstanding compared to weighted average number of $36,330,792 shares outstanding in the year ago period.

Turning to our balance sheet, cash at the end of the second quarter was $12.5 million, down from $14.9 million in the end of the first quarter 2013. During the second quarter 2013 we generated $8.3 million of cash from operations and used $2.8 million for capital expenditures, another quarter of strong positive cash flow.

As of June 30, 2013 our total net debt was $204 million, reflecting a reduction of $8 million in the second quarter. And our debt ratio was approximately 3.35 times our LT and EBITDA. As Tom mentioned we're committed leveraging the strong cash flow of our business along with utilizing lean tools to reduce inventory days on hand, and pay down debt and lower our leverage ratio.

Now turning to our guidance, for the full year 2013 we're reiterating the full year financial guidance. We anticipate revenue to be in the range of $400 million to $450 million. Our full year GAAP and adjusted earnings per share guidance is expected to be as follows. We anticipate full year 2013 GAAP EPS in the range of $0.14 to $0.24, and full year as adjusted EPS to be in the range of $0.40 to $0.50. The GAAP and as adjusted both include the anticipated impact of medical device packs, which we expect to decrease our 2013 net income by approximately $0.02 per share.

The as adjusted EPS guidance removed the impact of all amortization expense on non-cash item of approximately $0.16, restricted stock and non-cash item of approximately $0.05, and acquisition related cost, severance cost and other expense of approximately $0.05. Together these items are expected to negatively impact full year 2013 GAAP EPS by approximately $0.26. We also expect to generate approximately $40 million cash from operations for the year and spend approximately $12 million on capital expenditures.

I will now turn the call back over to Tom.

Tom Sullivan

In closing the second quarter we continued to make progress in improving our OEM solution segment and stabilizing the business for Symmetry Surgical. We remain confident in the long term outlet for both segments of our business and remain active in our efforts to expand OEM solutions revenue and margin. And Symmetry Surgical challenges remain, but we believe we're on track to achieve our revised goals for year. The key areas of focus for the second half of the year remain. One, position Symmetry Medical OEM solutions to gain market share and benefit from supplier rationalization, increased outsourcing, new product launches and of course any potential increase in patient volume when procedural volumes is uptick.

Two, improved OEM solutions gross margin through the Symmetry business system and other internal initiatives such as our ERP consolidation. Three, reinvigorate growth in Symmetry Surgical segment, including leveraging the harmonized U.S. sales force to capitalize on cross selling opportunities. And four, enhance cash flow generation in profitability to lower our debt and position us to retire our high interest debt by year end.

If we accomplish these goals, we believe it will translate into sustainable long term revenue growth and market share gains, and more diversified innovation driven company with improved profitability, strong cash flow and reduced leverage, and ultimately enhance shareholder value. We'd now like to turn the call open for questions, and I would ask our operator Cliff to open it up. Cliff?

Question-and-Answer Session


We will now begin the question-and-answer session. (Operator Instructions). Our first question comes from Matt Miksic from Piper Jaffray. You may go ahead.

Matt Miksic - Piper Jaffray

Thanks. Good morning. So, it seems like, as you’ve mentioned have been able to stabilize some of the downward pressure on the SSI business related to this transition. Can you talk may be you mentioned refocusing the sales force, some training in the sales force. Maybe talk a little bit about, how much of those issues were sort of more logistical and operational in nature and how much of that’s been a trust? And then whether this represents a good base for the rest of the year kind of sequentially or if there is any sort of seasonality of pacing of the rest of the year that we should think about?

Tom Sullivan

Good morning Matt. Thanks for the questions, appreciate it. We believe that in the second quarter we really completed a lot of the efforts to position the U.S. business to get back on track. So we have to harmonize the sales force on April 1, what that did is put all the products in everybody’s bag, so to speak, and assigned a new territory. But April 1 is really the first day that we made the change, clearly it takes a little bit of time for them to get their sea legs in their new territories, start to build those customer relationships.

But mechanically the territories were in place at the beginning of the quarter. Throughout the quarter we did the other things to really get them going including detailed product training on the products that they weren’t familiar with. They might have carried one bag versus the other. We also put our first catalog in their hands which believe it or not is a 10 pound document that shows the true breadth of our product portfolio.

So we really believe throughout the quarter we did the operational or executional thing to get them positioned to be spending more time driving growth with their customers in their new territory. So we think we started to see that impact in the second quarter and we really believe that on a sequential basis we have growth opportunities going forward.

And we’ve already grown a little bit sequentially but we’d like to see that rate pick up now going into the third and fourth quarters as they are more comfortable in their territory.

Outside the U.S., we’d completed our first comprehensive training of our international distributors. As I mentioned already in the call, we’ve gotten a lot of our regulatory processes in place. We still have some countries remaining but they are less material than the countries that were outstanding earlier on and now it’s a question of our international distributors starting to get traction in each of their local marketplaces.

So we are looking for sequential improvements going forward from this point Matt.

Matt Miksic - Piper Jaffray

Great, and then on the OEM side, can you talk a little bit about the maybe the mix of demand there that you’re seeing on the implant side? May be some additional color, you’ve mentioned a couple of times the timing of orders, magnitude of orders if there is anything to call out and maybe how that affects the next couple of quarters for that business in terms of how we should think about the pace.

Tom Sullivan

We’re really pleased with our implant team. They delivered a great quarter in serving our customers there. Clearly the growth year-over-year is pretty substantial in that business as we dug into it there is a slight consumption increase I think we’ve all seen that in our customer’s reports that are out there. It’s not still at the demographic patient level demographic rate of that 4% to 5% procedural growth but it certainly was a reasonable consumption quarter.

What we saw is a number of our customers adjusting their safety stock values, their forecasting. What we believe was movement merely in their ERP systems as opposed to significantly greater consumption. So we wanted to be transparent and not imply that our procedural consumption rates are that high. We also believe there is some stocking orders associated with some new launch activity that customers might be doing. So we really view it as a very positive quarter. We’re quite pleased with that, but we don’t want to get the impression it was all driven by consumption.

Matt Miksic - Piper Jaffray

Okay, so maybe some moderation, seasonal moderation in Q3 and then strength into the end of the year or maybe remind us just do you typically get the trimming towards the end of the year around inventory management just maybe some help on the pacing for the next couple of quarters.

Tom Sullivan

There is no significant consumption driven seasonality. I mean, it does have some variation but what we will usually see on our implant business is a reduction in inventory levels by our customers in the fourth quarter. So we normally expect there to be inventory pressure in Q4 which artificially drags that number down. So there is a seasonality effect because of inventory reduction efforts. The third quarter is usually and near the peak of the high water market and it comes down in the fourth quarter.

Matt Miksic - Piper Jaffray

Got it, and then if I could just one comment that you mentioned a couple of time also is around supplier rationalization and some decrease in suppliers’ rationalization. Could you expand a little bit on that trend? What you think is slowing that down or folks maybe just gotten to where they are close enough to where they need to be over the past few years or this dragged it with some of these larger product launches or what is driving that kind of pause maybe in the supplier rationalization front?

Tom Sullivan

We do believe that supplier rationalization, along with increased outsourcing, are two of the long term growth drivers in this segment. On the rationalization front, it takes work to relocate a product from one manufacturer to another. You have to go through a revalidation and that consumes the OEMs resources to do that validation so the start would be an easier movement, we are seeing is a little bit more sluggish really for two main reasons; one is that the fastest way to rationalize the supplier the most efficient way is to not give them new products and so clearly if they are not getting the new products as the old product die-off they are rationalized out and we have seen some suppliers doing or some customers doing a little bit more of that, the other side though it’s eventually you still have low volume products with these legacy suppliers that you have got a put together bid packaging and it’s often thousands of products with the very little volume on them so they are not always the most attractive opportunity but we take great pride in servicing the comprehensive needs of our customers. So where we are seeing these packages, we do bid on them and we are pursuing them but the OEMs often aren’t prepared to transfer that work quickly just because of the sheer volume of quotes that it has and then the number of revalidation that would occur. So for us we think the sluggishness is driven by nothing more than resources it takes to transfer that volume from one manufacturer to another.

Matt Miksic - Piper Jaffray

Okay so still there is a driver just may be a longer game in the longer time?

Tom Sullivan

Exactly, we are seeing bid packages as we speak, we have one bid packages so we are confident that this is having an impact on us, it’s just not as material to the financials as we would like at this juncture.


Our next question comes from Matt O’Brien from William Blair. You may go ahead.

Kayla Crum - William Blair

Hi guys this is Kayla in for Matt, thanks for taking our questions. First start just to follow up on Symmetry Surgical, I know that you touched on integration issues once again, we are just curious as to what your guidance is assuming in terms of lost to regain customers?

Tom Sullivan

I appreciate the question, the guidance range that we have for Symmetry Surgical reflects our climb back from the quarterly rate that we have been adds in these two quarters so for us it’s difficult to say as that regaining our lost customer, we really view it as re-strengthening the relationships with customers to make sure that they know Symmetry Surgical is here for their product needs. Clearly outside the U.S. where the sale shortfall has been much greater that’s about re-establishing our footprint in those countries. So, if you look at the guidance, it assumes a range that goes from basically flat to the first half of the year to some positive sequential growth in the back half and that really comes as an effort of our sales reps getting out there and having time to actually drive growth again.

Kayla Crum - William Blair

Okay that’s helpful and then on the margin side, SG&A was a bit higher than we were expecting, how should we think about that trending in the back of the year?

Tom Sullivan

Very good question, one of the things that we included in the discussion today was the announcement of our opening of our supply chain and customer service center in Schaffhausen, Switzerland. So, that’s been an incremental investment this year versus a year ago so that’s been one of the contributing factors to increasing our SG&A rates. We are pleased to have that facility open, it now brining us value to help drive both the Sym Surgical global chain as well as our international distributor sales but that has been an incremental expense on the P&L. What we would like to is we are watching our cost closing at this point in time and we’d like to try to bring some of our expenditures down in the back half particularly as it relates to some of the integration issues that we have had and taking those costs back out so we’d like to see improvements in both SG&A as well as other operating expenses.


(Operator Instructions) Our next question is from Jim Sidoti from Sidoti & Company. You may go ahead.

Jim Sidoti - Sidoti & Company

You indicated you would expect Symmetry Surgical improved throughout the back of the year now third quarter hospital business is typically, seasonally a little bit slower, do you think you will see improvements despite that seasonality in the third quarter?

Tom Sullivan

That’s a real good question. From a year-over-year basis, we would like to get back as where we can drive growth versus a year ago, so that would be a factor of the seasonality. On a sequential basis, you know we would still like to see better execution that overcomes any seasonality weaknesses, certainly the seasonality weakness is much greater in the international market particularly in Europe associated with the third quarter but you know we would like to strive the drive sequential growth in the third quarter despite that.

Jim Sidoti - Sidoti & Company

And I just want to be clear, the revenue for the quarter that ended in June was a little bit stronger than what you would thought it was going to be back on June 10th and I think what you are saying is some of that revenue was just pulled forward from the third and fourth quarter?

Tom Sullivan

The OEM solutions business particularly the implant business came on stronger than we thought, I wouldn’t so much say that it was pull forward Jim as I would say that customers adjusted inventory levels and forecast levels in the ERPs which pushed up the orders to us in the short term, I know is that pull volume forward from future periods but its depends on whether or not they change those safety stock levels back down but we think there was little bit of elevation just through the adjustment of those safety stocks.

Jim Sidoti - Sidoti & Company

So if their end-user demand continues to stay steady and may be pick up and that would actually not be really pulling forward but that would just be increased volume?

Tom Sullivan

Yes that would be the hope, the issue is whether or not you would continue to see consumption driving double digit growth in implants you know that’s what we want to be very careful to call that out it was consumption as well as inventory changes.

Jim Sidoti - Sidoti & Company

And your revenue was more tied to absolute volume implant, not implant revenue because whether or not the price comes down to your customer you are still going to meet the implant sale.

Tom Sullivan

Yes so certainly that’s why we try to keep our focus on procedural growth rates and we do everything we can to take a look at a reported and constant current revenue and then factor up our price in mix to try to calculate what we believe is consumption out there and when the demand passes stopped, it’s really affected by the consumption as well as any inventory decisions that an OEM make so if they want to raise their inventory by a weaker supply that generates demand for us so it isn’t really related to consumption.

Jim Sidoti - Sidoti & Company

Right and this seems to me that because of the current pricing trends, volume increases are 2% to 3% ahead of revenue increases from most of the large OEMs.

Tom Sullivan

Our guidance is assumed this year of volume of approximately 2% to 3% each point growth and we believe that the demographic growth rate is still closer to the 4 to 5 range, so we think that the patients are still delaying surgery because of concerns with their jobs is our core thesis and we are not backed to that strong demographic growth rate that I think all of us would like to see.

Jim Sidoti - Sidoti & Company

Right and as far as re-financing goal, do you still plan to re-finance some of that expense of debt in the fourth quarter of this year?

Tom Sullivan

Yes certainly, Fred did just a great job on the debt this quarter, paying down nearly $8 million worth. We are working hard to position ourselves to take out our mezzanine debt which is $65 million above 14% interest rate, so we are actively working on our re-financing efforts at this time.

Jim Sidoti - Sidoti & Company

Right and then any comments on the new president of the Symmetry Surgical business, does he on board with the changes you have made so far and what should we expect out of him?

Tom Sullivan

Thanks for asking for that. It’s really to be welcoming Ajey Atre to our team. Ajey joins us with an absolutely terrific general management background, real strength in global business. He has a great educational background, has worked for some of the blue-chip companies in our business so really consider ourselves fortunate to have him joining the team. Ajey doesn’t officially start until August 12, so he has not been directly involved in the business until his current position ends. But he and I have spoken about the activities that are taking place and I make him aware of some of the decisions that we are making. I feel he and I are very much aligned on our outlook for both the opportunity as our outlook for what we are focused on when he gets to the business later this month.


And so we have no further questions. Tom, do you have any closing remarks?

Tom Sullivan

Thanks, Cliff I appreciate that and thanks everyone for making the time today to listen and join us for the Symmetry Medical Second Quarter conference call. We appreciate the support of our investors and we look forward to continuing to improve our execution to build the long term business that we believe is possible in this market segment. Thanks a lot every one and have a great day.


Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect.

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