Greatbatch, Inc. (GB) Q1 2016 Results Earnings Conference Call April 28, 2016 5:00 PM ET
Tony Borowicz - Vice President, Business Development and Director, Investor Relations
Thomas Hook - President and Chief Executive Officer
Michael Dinkins - Executive Vice President and Chief Financial Officer
Matt Mishan - KeyBanc
George Santo - RBC Capital Markets
Charles Haff - Craig-Hallum Capital
Welcome everyone to the First Quarter 2016 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.
These statements are based upon Greatbatch Incorporated’s current expectations and actual results could differ materially from those stated or implied. The company assumes no obligations to update forward-looking information, included in this conference call to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results, financial conditions or prospects.
I will like to turn the call over to today’s host, Vice President, Business Development and Director of Investor Relations, Tony Borowicz.
Great, thank you, and hello everyone and thanks for joining us on our call today. With us are Thomas J. Hook, President and Chief Executive Officer and Michael Dinkins, Executive Vice President and Chief Financial Officer. As we have done in the past, we are including slide visuals with this presentation which you can access now on our website at greatbatch.com.
The terms of the agenda for today's call, Michael will review the first quarter financial results and provide second quarter revenue guidance and will reiterate our full year revenue, adjusted EBITDA and adjusted EPS guidance as previously issued. Next Tom Hook will discuss our three key strategic priorities which are one, to drive organic product growth and our core products; two, integrate our legacy Greatbatch and Lake Region Medical businesses; and three, to drive growth through complete medical device systems and partnerships with our customers.
With that, now let me turn the call over to Michael Dinkins.
Thanks, Tony and good afternoon everyone. My comments today will include our operating performance, balance sheet metrics and guidance for the second quarter and full year. My comments will focus on comparable basis amounts for 2016 which excludes the results of Nuvectra Corporation prior to its spinoff on March 14. The comparable basis amounts for 2015 excluding results of Nuvectra and include the results of the former Lake Region Medical for the entire year.
Our historical pro forma information presentation which were filed with the SEC on Form 8-K on February 29, contains the reconciliation of 2015 comparable amounts to as reported amounts. Please refer to tables A and B at the end of our press release where reconciliations of as reported adjusted amounts to GAAP.
The first quarter results were in line with our expectations. In terms of comparison to 2015 we knew it was going to be a tough comparison because last year's first quarter does not reflect the full effect of the downturn in the energy market, the headwinds in CRM markets or the FX impacts from the declining euro.
If you look at the variance analyses provided on Slide 5, you will see that these factors contributed to the negative sales volume variance of $0.13 per share in the quarter. In addition, the first quarter sales variance price as compared to productivity improvements achieved is a net negative partially due to price concessions made in the quarter for long term commitments and lower production volumes which resulted in lower fixed costs overhead absorption.
We believe the higher revenue volume in the second half of the year, combined with integration synergies will result in gross margins returning to the 28% to 29% range. This improvement in gross margins along with achieving the balance of the current year's synergies of at least $20 million will be the key driver for the improved adjusted EBITDA and EPS performance needed to make our annual guidance.
In the appendix, we have a detailed slide explaining our GAAP and adjusted effective tax rate. As you will know, our effective tax rate for the quarter was 42%. This is due to the low level of adjusted pretax earnings and the approximate 30% tax rate used to tax effects our EPS adjustments. Our estimate for the total year remains at 30% and the expected cash tax payments are still expected to be approximately $10 million for the calendar year.
The takeaway from Slide 5 is that although our adjusted EPS was significantly low last year, comparable performance it was expected and is consistent with our guidance for the total year.
So let's turn to Page 6 to review our revenue performance. First quarter 2016 sales of $331 million decreased 7% on a comparable constant currency basis. Foreign currency exchange rates had a negative $1.6 million impact on revenue during the first quarter in comparison to the prior year.
The decline is caused by the impact of end of life products, specific customers’ working down their inventory levels in the quarter, price concessions made in return for long-term volume commitments, and the continuing impact of a slowdown in the energy markets. These decreases were partially offset by growth in our neuromodulation business.
Let's review each product category beginning on Slide 7. First quarter 2016 Advanced Surgical, Orthopedics, and Portable Medical sales about $91 million decreased 14% on a comparable constant currency basis. Foreign currency exchange rates had a negative $1.4 million impact on this product line revenue during the first quarter in comparison to the prior year.
This decrease was partially due to portable medical customers building safety stock in the fourth quarter of 2015 in anticipation of our product line transfers, thus lowering orders in the first quarter of 2016; the timing of orthopedic customer product launches, which increased our first quarter 2015 sales; customer inventory adjustments; and price concessions made in return for long-term volume commitments.
Slide 8. First quarter 2016 Cardio and Vascular sales of $134 million decreased 3% on a comparable constant currency basis. Foreign currency exchange rates had a negative $0.2 million impact on this product line revenue during the first quarter in comparison to the prior year. This decrease was primarily due to specific customers working down their inventory levels in the quarter and we locked into on behalf of our customers' forward contracts on platinum which lowered our revenue by $2.2 million for the quarter. This reduction in revenue, because of platinum does not impact our gross profits.
Slide 9. First quarter 2016 Cardiac/Neuromodulation sales of $96 million decreased 2% on a comparable constant currency basis. Foreign currency exchange rates did not materially impact this product line during the quarter. The decrease was primarily due to the continuing impact and the runoff of end of life products, specific customers’ working down their inventory levels in the quarter, and price concessions in return for long-term volume commitments. These factors were largely offset by growth in our neuromodulation business.
Slide 10. First quarter 2016 Electrochem sales of $12 million declined 34% on an as reported and comparable basis. Foreign currency exchange rates did not materially impact this product line during the quarter. This decrease was due to the continued impact of a slowdown in the energy markets, which has caused customers to reduce drilling, pipeline inspection and exploration volumes.
We expect the slowdown in the energy markets to continue to impact year over year comparisons in the second quarter of 2016, but will have less of an impact in the second half of 2016 reflecting the reductions in inventory and reduced orders that occurred in the second half of 2015. We currently believe that the impact of the downturn in energy markets on our business has bottomed, but we do not expect a rebound in our Electrochem business until at least 2017.
Slide 11. Cash flows provided by operating activities for the first quarter of 2016 were $30 million and capital expenditures were $19 million. Cash flows from operations during the first quarter of 2016 were negatively impacted by $23 million of consolidation, IP related litigation, acquisition, integration and spin-off related expenses, which are predominantly cash expenditures.
During the first quarter of 2016, we repaid $7.25 million on our outstanding term loans. Additionally, cash balances decreased $28.4 million during the first quarter of 2016 as $76 million of cash was spun-off with Nuvectra, which was funded with cash on hand as well as $55 million of borrowings on our revolving line of credit.
Slide 12 and 13 are guidance. For the second quarter, we currently expect revenue to be in the range of $355 million to $360 million a $24 million to $29 million improvement from our first quarter performance. This is largely driven by specific increased customer purchase orders and our Portable Medical, Orthopedic and Cardiac Rhythm Management and Vascular business categories coupled with new product launches addressing arthroscopic and electrophysiology applications.
For the full-year 2016, we are reiterating our previously reported guidance of revenue in the range of $1.425 billion to $1.475 billion, adjusted EBITDA in the range of $320 million to $335 million, and adjusted earnings per diluted share in the range of $3.00 to $3.35 per share.
Adjusted EPS for 2016 is expected to consist of GAAP EPS excluding items such as intangible amortization approximately $40 million, IP related litigation costs, and consolidation, acquisition, integration, and asset dispositions/write downs totaling approximately $110 million.
The after tax impact of these items is estimated to be approximately $75 million or approximately $2.40 per diluted share. Additionally, our revenue and adjusted EPS guidance excludes the results of Nuvectra prior to its spin-off on March 14 of $1.2 million and a loss of $0.08 per share, respectively.
As discussed earlier, our adjusted effective tax rate for the first quarter of 2016 was approximately 42% as a result of the Company tax affecting its adjustments at the statutory rate, consistent with adjusted diluted EPS methodology, we use a 30% tax rate for all of these adjustments and when compared against the lower earnings in the quarter, this gives rise to an inflated rate.
This impact is expected to normalize over the remainder of the year as adjusted taxable income increases and we expect our full-year adjusted effective tax rate to be approximately 30%. Cash taxes are expected to be approximately $10 million for 2016.
I will now turn the call over to Tom Hook to discuss our strategic priorities.
Thank you, Michael. Turning to Slide 15. To summarize, our performance in the quarter was in line with our expectations. In terms of comparison to 2015 we had difficult comparables. In last year's first quarter we had not yet seen the full effect of the downturn in the energy market and also had not experienced the headwinds in the Cardiac Rhythm Management market and the foreign exchange impact from the declining euro.
As we head into 2016 these effects have mitigated but still remain. We feel customer demand in the energy market is adjusted to a new lower base line level and sales will remain flat into 2017.
In the Cardiac Rhythm Management market, which now comprises approximately 20% of our revenue will continue to have some headwinds this year as our customers inventory levels continue to reset and OEM clinical market shares settle out on the positive side. Our growth in neuromodulation medical device revenue has largely offset the impact in our CRM products.
In the quarter we completed the spin-off of Nuvectra as an independent neurostimulation platform company. Nuvectra is now entering the U.S. market and in combination with our existing neurostimulation market presence we had two catalysts enabling our strategy to grow revenue in complete medical device systems. Additionally, we are in the process of extending long-term contracts with several key major customers as we continue to demonstrate our ability to provide innovative, cost-effective solutions for fully integrated medical device systems.
Taking all of the factors into consideration we are reconfirming the previous sales, adjusted EBITDA and adjusted EPS guidance as Michael has provided. It is important to reiterate as revenue increases our gross margins are expected to increase accordingly and the temporary tax effect we saw in the quarter will return back to the expected 30% effective tax range, all of which supports our full year outlook.
Slide 16. Now let me focus on the discussion on our three key long-term growth priorities that we have listed. These three strategic priorities are first to drive core organic product growth, second to integrate legacy Greatbatch and Lake Region Medical businesses and third to drive growth through complete medical device systems in partnership with our customers.
Let me address each strategic priority. Turing to Slide 17 our first priority is to drive organic growth in the core Components and Technical Solutions business. Driving growth starts with further strengthening our customer partnerships.
Last quarter we announced the new Integer executive leadership team. In this new structure we have moved from a single functional sales and marketing organization to a structure that is aligned with our four principal customer markets; Cardiac Rhythm Management and Neuromodulation, Cardio and Vascular, Advanced Surgical and Orthopedics and the non-medical energy, military, and environmental markets. Each one of our four product category presence is responsible for the corresponding markets.
In addition, because the majority of our medical customers cut across multiple product categories, each president has been given responsibility for specific major customers. We believe this organization structure will allow us to more actively engage and partner with each customer to deliver innovative and cost-effective solutions.
Global account representation will coordinate activities across all of Integer's product categories. Technical solutions teams bolster growth strategy for discrete engineered components through co-developed devices, Integer branded solutions and complete medical device systems and partnerships with our customers. We believe that this new structure will allow us to partner more closely with our customers to drive organic growth.
Referring to Slide 18, the second strategic priority over the next three years will focus on integrating both legacy businesses to form a single unified entity which we will now refer to as Integer.
I am very pleased to report that our integration of the companies is going extremely well. We have a dozen or so work streams that are concurrently working to combine operations and infrastructures into a single cohesive company and do so without disruption to our commercial operations. We have already completed the three organizational phases of the integration. The executive leadership teams, senior leadership team and administrative infrastructures have all [indiscernible]. As we progress through the year we will continue to aggressively drive supply chain improvements and other organizational efficiencies.
In the first quarter we achieved synergies of approximately $5 million and with the recently implemented third phase of the organizational integration plan we expect to drive at least an additional $20 million in savings throughout the remainder of this year. As we look beyond 2016 one area of focus will be optimizing our manufacturing footprint which will drive the majority of the synergies. We have a clear line of sight to achieving annual savings of $50 million in 2017 and annual savings of at least $60 million by the end of year three.
With the acquisition of Lake Region Medical we have added 38 facilities bringing our total number of facilities to 60. We have historically demonstrated a core expertise and effectively optimizing operations to reduce redundancies and improve operational efficiencies. I am confident we will be able to achieve the same results going forward and do so without customer disruption.
As depicted on Slide 19 our third strategic priority will be continuing to drive revenue growth for complete medical device systems. In multiple product categories we can now provide a full spectrum of products ranging from discrete components and subassemblies to co-developed and fully branded medical device systems. We will continue to drive growth by offering full medical device systems that incorporates our extensive growing intellectual property portfolio.
As you can see illustrated on Slide 20 our current revenue mix of technical solutions as compared to more comprehensive product solutions is 81% and 19% respectively for the combined company. Integer has evolved from a purely technical solutions focus seven years ago to a 19% product solutions blend. This continued evolution and partnership with our customers allow us to drive even more value and strengthen our long-standing partnerships.
To conclude, on Slide 21 and 22, you can see some examples of medical device level innovation that are now capable of providing with the acquisition of Lake Region Medical. By combining the capabilities of the standalone companies we now have the full suite of device level competencies that allow us to innovative it across our product categories.
We have clearly demonstrated this performance with the completion of the active implantable spinal cord neurostimulation system that we are fully designed, developed and now manufactured from Nuvectra. The merger of Lake Region now extends our device capabilities in the cardio and vascular and advanced surgical markets. We are excited about the growth prospects of our extended product and capability offerings bring. We look forward to successfully executing on our strategic growth drivers in the future.
Now let me turn the call back over to the moderator to facilitate questions and answers.
Thank you. [Operator Instructions] And our first question comes from the line of Matt Mishan with KeyBanc Capital Markets. Your line is now open.
Hey good afternoon. Thank you for taking my questions.
Hey, just to start off, can you talk a little bit about the cadence of sales growth as you go through the course of the year? If I am looking at it right, it looks as if the second quarter is also going to be down in that mid-single digit area and then you have a recovery in the back half in the mid-to-high single digits to get you back to the midpoint of your sales guidance and I just would like to know what gives you confidence in that second half recovery on the sales?
I'll answer the math and the macro then Mike can provide some supplemental comments. So obviously as we look out with each of the product categories with our customers and planning for the long run we have a very good view through strategic dialogues with our customers, what our orders and flows some extortionist [ph] actions like foreign exchange, energy market dynamics et cetera which are tough to predict. We obviously feel that those effects can stabilize and bottom out so we don’t feel that those are headwinds for us anymore. They are not going to get any better. We don’t believe they are going to get any worse. So that gives us better predictability or customer ordering pattern.
We believe the inventory rationalization took place and then some of the product categories will mitigate as well. So as we look out at our normal business flow from our customer relationships quarter-over-quarter, we ended up having more predictable streams based on product development products and new product introduction products that we worked on with them and as we actively plan out on a quarterly basis how they are launching and drawing those products.
We largely get down to the traditional variables that have affected us which is the timing of those product launches which are primarily driven off the regulatory approvals that our customers obtain. So we think that is the risk factor that we're down to from a traditional standpoint. And then we think traditionally we manage that fairly well and we are not expecting any negative exogenous variables to affect us like it has in 2015.
Yes, I'll reiterate some comments. If you look at Portable Medical we've got it positioned in a lower cost production facility, which make us more effective in the marketplace. We're starting to see that recover as part of the drive for our second quarter. if we look in the second half particularly the third quarter for energy a very, very low quarter even below the run rate that we're at now, so it gives us a better comp or user comp in comparative energy in the third quarter if we just maintain where we're at. And as Tom just indicated, there are some product launches that we expected from customers in the second half of the year that is also driving the improvement.
Okay great, that's very helpful. I appreciate the color there. I think we saw some news today with St. Jude and Abbott. I was just hoping you could talk through what you think are the implications to Greatbatch Lake Region as a result of them coming together?
We saw the news of the St. Jude-Abbott deal this morning as well along with everyone else. We're very optimistic about the deal. We've been in touch and communicating at high levels with both companies and do on a regular basis both from a technology operations as well as executive management levels which we have already done today. We view the deal as not really the DNA of what is happening in the market.
We've expected large deals to take place. There have been rumblings of continued consolidation throughout the healthcare markets including medical technologies, so these were expected. Specifically with regards to St. Jude and Abbott, we have very healthy and productive relationships with both customers, both from a legacy Greatbatch and legacy Lake Region perspective.
We view what's driving the merger of Greatbatch and Lake Region together the [indiscernible] is at the heart of what's driving the St. Jude-Abbott and other consolidations with the industry to drive higher levels of effectiveness and efficiency and we believe we're capitalizing the integrated companies drive our ability to be productive both at a technology level and cost level for customers is being able to support complex deals like St. Jude and Abbott as a partner for those organizations. So we're bullish about the deal.
Obviously it will take some time for it to close, but we plan on continuing to perform for each company in an independent basis until they are combined and we feel that that is a lot of areas where that combined company will be able to leverage the medical device systems capability of Integer that we're pulling together very quickly since we closed our deal back in October. So I think we've oriented Integer for success with St. Jude and Abbott independently and we'll be very well aligned with them post the close of that transaction in the future.
All right, thank you Tom, thank you Mike.
Thank you. [Operator Instructions] And our next question comes from the line of Glen Novarro with RBC Capital Markets. Your line is now open.
Hi guys, this is George on for Glen. Thanks for taking my questions.
On the CRM side has there been any changes from your point of view in the timing of the product launches in your dairy or in your schedules from clients, I mean how comfortable do you feel recovering that business throughout the rest of the year?
And your actual question is on a monthly basis we're always locking off with our customers on timeline adjustments. And the simple answer is George is there are constant adjustments in timelines both in and out for every product that we have on our plate. So as you would know that whether it is legacy Lake Region or legacy Greatbatch type product developments with our customers, these products have occurred multiple years ago.
So we already have won those products and converted in qualified or components and are selling those products to feed the launches with the medical device customers. So while they sometimes they are just a month or two earlier or later their plans to ramp and on average those normalize out and we have internal systems that we apply risk factors to make sure that we're not overheating or underestimating our capacity planning to support those.
So traditionally, we have done a very good job at predicting those and in partnership with our customers. So the guidance that we've provided both on annual and second quarter basis reflects that risk adjustment and right now I see products moving. I don't see any major changes occurring that would be untypical.
There are always slight adjustments based on the FDA reviews and final approvals in the launch quantities to manufacturing for those. And I think some customers based on the products that they have, the higher levels of complexities sometimes and those can adjust larger than the smaller products. But we've see that historically and it is to be expected.
So no surprises and as I was just saying in summary would be is that that's more of the traditional forecasting and guidance models that we run and we feel very confident that our guidance comprehends that.
Great, that's helpful and just a last one for me. It seems like the integration is just going very well so far and going on track to achieve cost synergies you've set out to achieve for this year. On the revenue synergy side when do you expect to begin generating some of those? Is it too soon or is it, are you just sort of seeing some of these revenue synergies come through right now?
George, it is an excellent question is the synergies for revenue we obviously are closing this deal said we would not provide any revenue synergies in the three-year period to be conservative as part of the transaction. However, we have immediately seen opportunities to join the capabilities of both companies and win product development projects with our customers. So we've already benefited from the ability of the combined broad portfolio of winning more broader suites of business with our customers.
But as you know, the challenge with that is that generates for us research development and engineering expense that then in the future years will generate revenues. So we know this will lead to bookings and revenue, but we have to go through the qualification phase this will lead to bookings and revenue, but we have to go through the qualification phase with customers.
We're still extremely bullish about it and that's one of the reasons why my comments was that the integration is going extremely well with the four product categories in place and already making traction with customers selling integrated medical device products beyond is our traditional discrete focus is off to a very strong start. That will facilitate us squeezing synergies out, but also evolving the company to be more systems level sale.
So even though we won't generate near term revenue synergies because we have to follow up those products and as we explained back when the deal closed in the fourth quarter going forward we know those revenues will come in as we continue to win those products and then it is off to qualifications. The frustrating part for us is because those contracts that we win for development are under strict confidentiality provisions with our customers.
We can only provide general comments of how we are doing here. We can't provide specific comments of which products we won. But I only can indicate that what drove the deal to put together the combined product portfolios is very effectively working five months into the transaction.
Great, thanks guys.
And one of the reasons why we added Slide 21 and 22 is to give you some ideas of the opportunities that are now available to us. So I would take a look at that to get some ideas of what we're capable of doing now.
Thank you. And our next question comes from the line of Charles Haff with Craig-Hallum. Your line is now open.
Hi thanks for taking my questions. I apologize I've been bouncing around between multiple earnings calls here. Did you mention anything about the Portland to Tijuana transition, is that been completed yet or are you still in process there?
That has essentially been completed. There is a little bit of – the last [indiscernible] so the door is shut and the lights turned off now but essentially has been completed. And the good thing about it is that is the new facility is operating the way that we have anticipated and then given those oddly advantages and efficiency gains that we had expected. We've hired some new people to help on the sales side of this now that we have a full facility and ready to go and part of the improvement that we're seeing in the second quarter performance and balance of the year is in our Portable Medical product line.
Okay, thanks for that Mike. And then I wanted to ask you about from the press release you said you've successfully implemented phase 2 of the synergy plan. I'm not familiar with the different phases of your synergy plan, so can you just kind of give us a brief snapshot of how many phases there are and how far along you are right now?
Yes, Charles this is Tom. It is multiple phases, but there's three organization phases that we fully implemented the executive leadership, the senior leadership which is the next level down and the administrative functions have all been implemented and completed. That's one bucket is organizational synergies and of course as we implemented those into the first quarter of this year in the balance of the year we will have a more full effect by quarter of that cost organizational rationalization.
The second bucket or phase will actually come into what we would call direct-indirect spend that where we actually reach out and go through make or by decisions as a company, that is actively in deployment and will be continued to be deployed over the course of 2016 and 2017. And then the final phase which we have not provided any guidance or information on beyond the macro guidance for our synergy targets of $25 million, $50 million and $60 million is going to be the third market is manufacturing synergies.
As we optimize our footprint in that we still are completing our analysis on and will be provided communications in sometime in 2016 with regards to what our plans more specifically are there. So those are the three major buckets of synergies within the integration plan that we're running in the first three pieces which the organizational pieces are done now, we are under the second and third buckets.
Okay, thanks for that detail. And then my last question is regarding the $5 million of synergies that have been achieved so far kind of following up on the previous question, you got on the revenue synergy side, I just want to be clear, is the $5 million that you're quoting here does that include some of those revenue synergies, are those that $5 million just the cast synergies?
So the cost synergies only we will – we're expecting no revenue synergies within the three-year integration period. We're just being conservative, so we're not going to guide to any revenue synergies. But we know we are already winning projects using the broad portfolio of Integer now, but obviously there will be product development projects in the bookings will occur years from now post qualifications and the revenues we're not going to count on. This will allow us to run a conservative model relative to synergies of the deal and it will be cost focused only.
So the $5 million in the first quarter we've realized are cost only synergies. Our $25 million target, which we're very confident of achieving in 2016 are only cost synergies and then for the 2017 of $50 million and 2018 of $60 million those are only cost synergies. So any revenue synergies we would realized we would communicate clearly and it would be in addition to the cost synergies.
Okay, so I have one more quick one. You mentioned on the last quarterly call that you felt very comfortable retaining all of the business lines from Lake Region and you didn't see any divestitures at least at that particular time. I'm wondering now that you've had a few more months to look at it, do all of the businesses that you acquired from Accellent and Lake Region still make sense in the Integer kind of picture?
It is a great question Charles and the answer is an emphatic yes. I visited every single Lake Region facility and every single operating team and I'm extremely impressed with their operating prowess on par and in many areas capacity and high volume manufacturing superior to the Greatbatch operating capabilities. And I see really no areas of divestiture that would be desired or needed they have a very strong product portfolio and this is very complimentary with the Greatbatch portfolio. So I'm very bullish about Integer's discrete product offerings all the way through complete medical device offerings with the combined portfolio now. So I don’t see any trimming as we move forward into the future.
Okay, great, thanks for taking my questions.
Thank you. And our next question is a follow up from the line of Matt Mishan with KeyBanc Capital Markets. Your line is now open.
Hey great, I was hoping you could give us a little bit more color on the customer price concessions. In particular, I think Mike, you mentioned something about platinum and it being like a pass-through I was just curious what the headwind would be through the course of the year and so that we can maybe back it out of our revenue totals and the comps will be a little bit easier?
I'll let Mike give the specifics. I'll just give a quick macro here and let Mike chime in on the specific.
Yes, our pricing for the first quarter and for the year is approximately about a negative 1.6%. So I think that would be the best guidance that we would give with you and we go through this, one of the things that we have tried to do with most of our negotiations is tie price to either cost improvements initiatives as they will help us implement so that we can offset bad price and maintain our margins and/or additional volumes that we will run through our facilities. So as we negotiate these, we try to and then in most cases are successful of making sure that what we have given up in price we can target productivity or volume to offset it.
And Matt, just for a point of reference for both legacy Lake Region as well as legacy Greatbatch this is the typical level that we've seen on an annual basis. So there is nothing different that we've seen in 2016 looking forward than we have seen historically more consistent with that.
Okay, that's great. And then as I look at the second quarter, could you give a little bit of color maybe where you may start to see in some improvement amongst the segments? You've pretty much, it was pretty broad based on the decline side in the first quarter. Should we be modeling something similar to that as the revenue growth side for the second quarter or is one segment maybe picking up a little bit faster than some of the other ones?
For the second quarter was the exception of our energy segment, all of them or the other three are picking up in the second quarter. So it is spread reasonably across the other three product lines, but we don’t see a pickup in energy.
Okay, thank you.
Thank you and I'm showing no further questions at this time. I would like to turn the conference back over to Mr. Tony Borowicz for any closing remarks.
Thank you all for joining us on the call today. As a reminder we've got the audio portion of this call along with the slides on our website for the next 30 days. Again, thank you for your participation today.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day.