Slide 1: 2014 Second Quarter Earnings Call
2014 Second Quarter Earnings Call July 31, 2014 1
Slide 2: Forward-Looking Statements
FORWARD-LOOKING STATEMENTS Some of the statements made in this presentation whether written or oral may be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and involve a numbe
Slide 3: Earnings Call Participants
EARNINGS CALL PARTICIPANTS Thomas J. Hook President & CEO Michael Dinkins Executive Vice President & CFO Betsy Cowell Vice President Finance & Treasurer 3
Slide 4: Agenda
AGENDA Thomas J. Hook Second Quarter 2014 Highlights Strategic Update Michael Dinkins Second Quarter and First Half 2014 Financial Results 2014 Guidance Question & Answer 4
Slide 5: Selected Q2 Highlights
SELECTED Q2 HIGHLIGHTS ($ in millions except for EPS) Q2 2014 Q2 2013 Variance Sales $172.1 $171.3 0%* Adjusted Operating Income** $23.8 $22.2 7% Adjusted Operating Margin** 13.8% 13.0% 80 bps Adjusted EBITDA** $33.1 $31.3 6% Adjusted EBITDA Margin** 19.2% 18.3% 90 bps Adjusted Diluted EPS** $0.60 $
Slide 6: Q2 Organic Sales Growth
Q2 ORGANIC SALES GROWTH ($ in thousands) 2014 2013 Product Lines QTD Actual QTD Actual Growth Greatbatch Medical Cardiac/Neuromodulation $ 80,005 $ 83,177 -4% Orthopaedics 37,865 32,341 17% Portable Medical 16,737 22,167 -24% Vascular 15,257 12,249 25% Energy, Military, Environmental 21,352 20,560 4
Slide 7: Q2 Performance: Cardiac/Neuromodulation
Q2 PERFORMANCE Cardiac/Neuromodulation (CRMN): (46% total revenues; -4% organic growth) Quarterly timing of customer orders Growth in shield assemblies and feedthroughs continues Initial impact of end of life products Greatbatch – CRMN CRMN Customers Sales - Rolling 4 Quarters Sales - Rolling
Slide 8: Q2 Performance: Orthopaedics
Q2 PERFORMANCE Orthopaedics: (22% of total revenues; 12% organic constant currency growth) Growth across all product categories Expanding served customer base Greatbatch – Orthopaedics Sales ($ in millions) Rolling 4 Quarters 40.0 35.0 30.0 25.0 20.0 15.0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2012 2013
Slide 9: Q2 Performance
Q2 PERFORMANCE Portable Medical: (10% total revenues; -24% organic growth) Continue refining product positioning while up against tough comparable versus prior year Vascular: (9% total revenues; 25% organic growth) Catheter momentum continues, powered by steerable products EME: (12% total revenu
Slide 10: Strategic Update
STRATEGIC UPDATE Executing investments in capacity and capabilities aligning resources to meet customer needs Announced $45M investment in Tijuana Mexico to serve the vascular and portable medical markets Established a R&D hub in the Twin Cities area for Global R&D Creating the Commercial Oper
Slide 11: Financial Results
FINANCIAL RESULTS a 288 Greatbatch
Slide 12: Q2 Financial Results
Q2 FINANCIAL RESULTS ($ in thousands except for EPS) Three Months Ended (Dollars in thousands, except per July 4, June 28, % April 4, % share data) 2014 2013 Change 2014 Change Sales $172,081 $171,331 —% $174,281 (1)% Organic Constant Currency Sales Growth —% 6% 17 % GAAP Operating Income $19,539 $1
Slide 13: Q2 Variance Analysis
Q2 VARIANCE ANALYSIS Adj. EPS Comments 2013 Adjusted EPS $ 0.56 Gross margin 0.03 Favorable performance based compensation $0.06 and Operating expenses 0.02 lower G&A $0.02; partially offset by higher sales and marketing ($0.05) and RD&E/DVT initiatives ($0.01) Lower interest expense $0.01 and adjus
Slide 14: First Half Variance Analysis
FIRST HALF VARIANCE ANALYSIS Adj. EPS Comments 2013 Adjusted EPS $ 0.99 Gross margin 0.26 Lower G&A expenses $0.04; offset by DVT ($0.08) and Operating expenses (0.14) lower NRE ($0.02) and higher sales and marketing ($0.08) Lower interest expense $0.05 and adjusted tax rate $0.02; Other 0.03 offset
Slide 15: Q2 Operating Cash Flow
Q2 OPERATING CASH FLOW ($ in millions) Net income $12.3 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 9.3 Debt related amortization included in interest expense 0.2 Stock-based compensation 3.6 Other non-cash gains (0.1) Def
Slide 16: 2014 Guidance
2014 GUIDANCE i $88 Greatbatch
Slide 17: 2014 Guidance
2014 GUIDANCE ($ in millions except for EPS) 2013 2014 Guidance Change Sales $663.9 $685 – $705 3 – 6% Adjusted Operating Margin(1) 12.5% 13.0 – 13.3% 50 - 80 bps Adjusted Diluted EPS(1) $2.10 $2.25 – $2.35 7 – 12% Adj. Operating Cash Flows (2) $85.5 $90 - $100 5 - 17% Capex $18.6 $25 – $35 34 - 88%
Slide 18: Appendix
APPENDIX a $88 Greatbatch
Slide 19: Selected June YTD Highlights
SELECTED JUNE YTD HIGHLIGHTS ($ in millions except for EPS) YTD Actuals YTD 2013 Variance Sales $346.4 $319.6 8%* Adjusted Operating Income** $46.1 $41.5 11% Adjusted Operating Margin** 13.3% 13.0% 30 bps Adjusted EBITDA** $64.7 $59.4 9% Adjusted EBITDA Margin** 18.7% 18.6% 10 bps Adjusted Diluted E
Slide 20: YTD Organic Growth
YTD ORGANIC GROWTH ($ in thousands) 2014 2013 Product Lines YTD Actual YTD Actual Growth Greatbatch Medical Cardiac/Neuromodulation $ 166,785 $ 153,701 9% Orthopaedics 74,296 61,964 20% Portable Medical 35,940 41,056 -12% Vascular 28,307 22,873 24% Energy & Other 39,483 38,522 2% Total Greatbatch Me
Slide 21: YTD Operating Cash Flow
YTD OPERATING CASH FLOW ($ in millions) Net income $27.3 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 18.6 Debt related amortization included in interest expense 0.4 Stock-based compensation 6.7 Other non-cash gains (3.9) D
Slide 22: GAAP Reconciliation
GAAP RECONCILIATION Table A: Operating Income Reconciliation Three Months Ended Greatbatch Medical QiG Unallocated Total July 4, June 28, July 4, June 28, July 4, June 28, July 4, June 28, (dollars in thousands) 2014 2013 2014 2013 2014 2013 2014 2013 Sales $ 171,216 $ 170,494 $ 865 $ 837 $ — $ — $
Slide 23: GAAP Reconciliation
GAAP RECONCILIATION Operating Income Reconciliation - 6 Months Six Months Ended Greatbatch Medical QiG Unallocated Total July 4, June 28, July 4, June 28, July 4, June 28, July 4, June 28, (dollars in thousands) 2014 2013 2014 2013 2014 2013 2014 2013 Sales $ 344,811 $ 318,116 $ 1,551 $ 1,480 $ — $
Slide 24: GAAP Reconciliation
GAAP RECONCILIATION Table B: Net Income (loss) and Diluted EPS Reconciliation Three Months Ended Six Months Ended July 4, June 28, July 4, June 28, 2014 2013 2014 2013 Per Per Per Per Net Diluted Net Diluted Net Diluted Net Diluted (in thousands except per share amounts) Income Share Income Share In
Slide 25: GAAP Reconciliation
GAAP RECONCILIATION Table C: Adjusted EBITDA reconciliation Three Months Ended Six Months Ended July 4, June 28, July 4, June 28, (dollars in thousands) 2014 2013 2014 2013 Sales $ 172,081 $ 171,331 $ 346,362 $ 319,596 Adjusted operating income* $ 23,800 $ 22,192 $ 46,110 $ 41,503 Add: Depreciation
Slide 26: GAAP Reconciliation
GAAP RECONCILIATION Table D: EPS Reconciliation 2013 2014 Guidance GAAP Diluted EPS $1.43 $1.94 - $1.99 Adjustments: Other Operating Expense(1) $0.46 $0.31 - $0.35 DVT Builds(1) $0.15 CSN conversion option discount and $0.12 deferred fee accelerated amortization(1) R&D Tax Credits and other Tax Item
Slide 27: Contact Information
CONTACT INFORMATION Betsy Cowell Vice President Finance & Treasurer Greatbatch 2595 Dallas Parkway Suite 310 Frisco, Texas 75034 214 618 4982 ecowell@greatbatch.com www.greatbatch.com 27