FRISCO, Texas--(BUSINESS WIRE)--Feb. 24, 2014--
Greatbatch, Inc. (NYSE:GB), today announced results for its fourth
quarter and full-year ended January 3, 2014 highlighted by 5% constant
currency organic revenue growth for the full year 2013; 12% year over
year improvement in adjusted operating income; and 19% improvement in
adjusted diluted EPS over 2012.
|
|
|
Year Ended
|
|
(Dollars in thousands, except per share data)
|
|
|
January 3,
|
|
|
December 28,
|
|
|
%
|
|
|
2014
|
|
|
2012
|
|
|
Change
|
Sales
|
|
|
$
|
663,945
|
|
|
|
$
|
646,177
|
|
|
|
3%
|
Organic Constant Currency Sales Growth
|
|
|
5
|
%
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Operating Income
|
|
|
$
|
61,339
|
|
|
|
$
|
25,821
|
|
|
|
138%
|
GAAP Operating Income as % of Sales
|
|
|
9.2
|
%
|
|
|
4.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Operating Income*
|
|
|
$
|
82,922
|
|
|
|
$
|
73,889
|
|
|
|
12%
|
Adjusted Operating Income as % of Sales
|
|
|
12.5
|
%
|
|
|
11.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Diluted EPS
|
|
|
$
|
1.43
|
|
|
|
$
|
(0.20
|
)
|
|
|
N/A
|
Adjusted Diluted EPS*
|
|
|
$
|
2.10
|
|
|
|
$
|
1.77
|
|
|
|
19%
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA*
|
|
|
$
|
118,888
|
|
|
|
$
|
112,345
|
|
|
|
6%
|
Adjusted EBITDA as a % Sales
|
|
|
17.9
|
%
|
|
|
17.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
(Dollars in thousands, except per share data)
|
|
|
January 3,
|
|
|
December 28,
|
|
|
%
|
|
September 27,
|
|
%
|
|
|
2014
|
|
|
2012
|
|
|
Change
|
|
2013
|
|
Change
|
Sales
|
|
|
$
|
176,619
|
|
|
|
$
|
159,186
|
|
|
|
11%
|
|
$
|
167,730
|
|
|
5%
|
Organic Constant Currency Sales Growth
|
|
|
13
|
%
|
|
|
(2
|
)%
|
|
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Operating Income
|
|
|
$
|
12,863
|
|
|
|
$
|
1,405
|
|
|
|
NA
|
|
$
|
17,002
|
|
|
(24)%
|
GAAP Operating Income as % of Sales
|
|
|
7.3
|
%
|
|
|
0.9
|
%
|
|
|
|
|
10.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Operating Income*
|
|
|
$
|
19,407
|
|
|
|
$
|
21,121
|
|
|
|
(8)%
|
|
$
|
22,012
|
|
|
(12)%
|
Adjusted Operating Income as % of Sales
|
|
|
11.0
|
%
|
|
|
13.3
|
%
|
|
|
|
|
13.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Diluted EPS
|
|
|
$
|
0.38
|
|
|
|
$
|
(0.23
|
)
|
|
|
NA
|
|
$
|
0.44
|
|
|
(14)%
|
Adjusted Diluted EPS*
|
|
|
$
|
0.55
|
|
|
|
$
|
0.53
|
|
|
|
4%
|
|
$
|
0.57
|
|
|
(4)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA*
|
|
|
$
|
28,715
|
|
|
|
$
|
30,508
|
|
|
|
(6)%
|
|
$
|
30,817
|
|
|
(7)%
|
Adjusted EBITDA as a % Sales
|
|
|
16.3
|
%
|
|
|
19.2
|
%
|
|
|
|
|
18.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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* Refer to Tables A, B and C at the end of this release for a
reconciliation of GAAP to adjusted amounts.
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CEO Comments
“We are pleased with our 2013 performance having finished the year in
line with our revenue and EPS expectations, which delivered 5% organic
constant currency revenue growth, a 12% increase in adjusted operating
income and $2.10 adjusted diluted EPS,” stated Thomas J. Hook, president
and CEO. “Along with achieving our financial targets for 2013, we also
made significant progress and achieved numerous milestones on our
long-term strategic imperatives. This included our PMA filing for our
spinal cord stimulation system to treat chronic intractable pain of the
trunk and/or limbs. We subsequently filed for CE Mark approval in
January of this year. Our intellectual property portfolio continues to
expand with one third of the portfolio representing medical device
patents. Through our new functional organization, we were able to
improve and expand our sales and marketing efforts and deliver
productivity improvements. We are renewed in our belief that our RD&E
and sales and marketing investments, coupled with our operating
discipline, position Greatbatch to meet its long term objectives of
maintaining 5% organic constant currency growth and double digit
adjusted diluted EPS growth.”
CFO Comments
“We ended the year with record revenues, excellent cash flows and
delivered $2.10 adjusted diluted EPS. With 13% organic constant currency
growth in the fourth quarter we achieved our targeted 5% organic
constant currency revenue growth in 2013. Operating cash flow, when
adjusted for tax payments related to the retirement of our convertible
debt, totaled $86 million,” commented Michael Dinkins, executive vice
president and chief financial officer. “Leveraging the Company’s revenue
growth, adjusted operating income margin improved 110 basis points for
the year although fourth quarter adjusted operating income was down 8%
versus the same period in 2012 driven by several contributing factors
including the planned increase in sales and marketing, higher medical
device spending, expenses associated with filing intellectual property,
and the timing of customer reimbursements for engineering projects."
Mr. Dinkins continued, “We are confirming our 2014 guidance of 3% to 6%
organic constant currency revenue growth and 7% to 12% adjusted diluted
EPS improvement.”
Fourth Quarter and Full Year Results
In connection with the realignment of the Company's operating structure
in 2013 to optimize profitable growth, which included changing our
management and reporting structure, the Company reevaluated its
operating and reporting segments. Beginning in the fourth quarter of
2013, the Company determined that it has two operating segments.
Greatbatch Medical designs and manufactures products where Greatbatch
either owns the intellectual property or has unique manufacturing and
assembly expertise and includes the financial results of the former
Implantable Medical and Electrochem segments, excluding our QiG Group
("QiG"). QiG focuses on developing medical device systems for some of
health care’s most pressing challenges. Through the research and
development professionals in QiG, the Company is now investing in three
areas - new medical device systems commercialization, collaborative
programs with OEM customers, and strategic equity positions in start-up
companies - to grow a diversified and distinctive portfolio. The medical
device systems developed by QiG are manufactured by Greatbatch Medical.
We have reclassified certain prior year amounts to conform them to the
new segment presentation.
Fourth quarter and full year results for 2013 include an additional week
of operations in comparison to the same periods of 2012 as the Company
utilizes a fifty-two, fifty-three week fiscal year, which ends on the
Friday nearest December 31st. Although this additional week of
operations may have impacted certain financial statement line items,
management believes that when combined with the additional holiday and
weather related shutdowns, this additional week did not materially
impact our net operating results.
Fourth quarter 2013 sales increased 11% to $176.6 million. After
adjusting sales by $3.1 million for the divestiture of certain non-core
orthopaedic product lines during the first quarter of 2013 and
approximately $1 million for the positive impact of foreign currency
exchange rate fluctuations in comparison to the prior year, sales
increased $19.5 million or 13% organically. This growth was primarily
due to strong organic constant currency growth from our
cardiac/neuromodulation (17%) and orthopaedic (33%) product lines due to
market share gains resulting from our increased sales and marketing
investment, customer product launches and the release of backlog
stemming from our Swiss consolidation and has not been adjusted for the
additional week of sales. This growth was partially offset by an 18%
decline in portable medical sales due to the tough comparable versus the
fourth quarter of 2012 as well as our pricing discipline, which resulted
in the loss of some low-margin business. For the year, sales increased
5% on an organic constant currency basis to a record $663.9 million,
and, similar to our fourth quarter results, this increase was driven by
above market growth from our cardiac/neuromodulation (6%) and
orthopaedic (20%) product lines. This 5% increase is consistent with our
long-term organic constant currency growth target.
Gross profit increased 11% to $57.4 million in the fourth quarter of
2013, compared to $51.9 million for the comparable 2012 period due to
our higher sales volumes. In comparison to the prior year quarter, gross
profit as a percentage of sales remained consistent at 32.5%. For the
year, gross profit increased 9% to $219.3 million over 2012 and was
driven by increased operational leverage due to our higher sales volumes
and productivity initiatives, as well as a favorable sales mix of higher
margin products. As a result, our gross profit as a percentage of sales
for 2013 increased 180 basis points to 33.0% from 31.2% for 2012.
Selling, general and administrative (“SG&A”) expenses increased $3.3
million to $24.2 million for the fourth quarter of 2013 compared to
$20.9 million for the same period of 2012. This increase is attributable
to the additional investments in sales and marketing resources to drive
core business growth, higher intellectual property filing fees, as well
as the additional week of payroll expense in 2013. For the year, SG&A
expenses increased 9% to $88.1 million, primarily due to the additional
investments made in sales and marketing and increased performance-based
compensation of $2.7 million. These increases were partially offset by
the synergies realized from our Swiss orthopaedic facility consolidation
of approximately $1.4 million.
Net research, development and engineering (“RD&E”) costs for the 2013
fourth quarter of $15.1 million increased $3.9 million over the fourth
quarter of 2012. This increase was primarily attributable to a decrease
in customer cost reimbursements compared to the prior year of $2.5
million, due to the timing of achievement of milestones on various
projects. The remainder of this increase was due to a higher level of
performance-based compensation as well as the additional week of payroll
expense. These increases were partially offset by our Swiss orthopaedic
facility consolidation which reduced RD&E expenses by $0.6 million in
comparison to the prior year quarter. For the year, RD&E expenses
increased $1.6 million as the fourth quarter increase and additional
performance-based compensation for the year were partially offset by our
initiative to refocus medical device RD&E investment, which began in the
third quarter of 2012, and included the discontinuation of certain
non-core RD&E projects.
In total, net medical device costs incurred by our QiG segment were $8.8
million and $30.5 million for the quarter and year ended January 3,
2014, respectively, compared to $6.9 million and $32.6 million for the
respective 2012 periods. Current quarter and full-year 2013 QiG results
include $1.3 million and $5.8 million, respectively, of design
verification testing (“DVT”) costs incurred in connection with the
Company’s development of a neuromodulation platform compared to $1.4
million and $5.2 million, respectively, for the comparable 2012 periods.
QiG’s medical device technology investment is primarily focused on
successfully commercializing Algostim and being selective in
opportunities that leverage the strengths of Greatbatch Medical and
drive sustainable growth.
GAAP operating income for the fourth quarter and full-year 2013 was
$12.9 million and $61.3 million, respectively, compared to $1.4 million
and $25.8 million, respectively, for the comparable 2012 periods. These
increases were primarily due to gross profit improvements and lower
consolidation and optimization costs, partially offset by higher SG&A
and RD&E expenses. Adjusted operating income, which excludes other
operating and DVT expenses, for the fourth quarter and full-year 2013
was $19.4 million and $82.9 million, respectively, compared to $21.1
million and $73.9 million, respectively, for the comparable 2012
periods. As a result of our increased operational leverage as well as
our various consolidation and productivity initiatives implemented over
the past year, our adjusted operating income as a percentage of sales
for 2013 increased 110 basis points over the prior year to 12.5%. Refer
to Table A at the end of this release for a reconciliation of GAAP
operating income to adjusted operating income and the “Use of Non-GAAP
Financial Information” section below.
The 2013 full-year GAAP effective tax rate was 25.7% compared to 171.3%
for the same period of 2012. This decrease was primarily attributable to
$6.2 million of tax charges recorded in 2012 relating to our Swiss
Orthopaedic consolidation. These charges related to the loss of our
Swiss tax holiday, due to our decision in 2012 to discontinue
manufacturing in Switzerland and the valuation allowance established on
our Swiss deferred tax assets, as it was more likely than not that they
will not be fully realized. The reinstatement of the R&D tax credit in
2013, as well as higher income in lower tax rate jurisdictions also
contributed to the more favorable tax rate in 2013.
GAAP diluted EPS for the fourth quarter and full-year 2013 were $0.38
and $1.43, respectively, compared to a loss of $0.23 and $0.20 for the
respective 2012 periods. Adjusted diluted EPS for the fourth quarter and
full-year 2013 were $0.55 and $2.10, respectively, compared to $0.53 and
$1.77 for the corresponding 2012 periods. These represent increases of
4% and 19%, respectively, and are well above our long-term adjusted
diluted EPS growth target of 10%. Refer to Table B at the end of this
release for a reconciliation of GAAP net income (loss) to adjusted net
income and the “Use of Non-GAAP Financial Information” section below.
Cash flow from operating activities for the fourth quarter and full-year
of 2013 were $40.7 million and $56.8 million, respectively, compared to
$25.3 million and $64.8 million, respectively, for the comparable 2012
periods. The quarter over quarter increase was primarily due to a higher
level of cash operating income. During the fourth quarter and
year-to-date periods of 2013, the Company made estimated tax payments
related to the retirement of its convertible subordinated notes in 2013
of $8.2 million and $28.8 million. Excluding these tax payments, cash
flow from operations totaled $48.9 million and $85.5 million for the
fourth quarter and full-year of 2013, respectively. This excess cash
flow from operations was used to repay $12.5 million of long-term debt
during the fourth quarter of 2013 and brought total net long-term debt
repayments to $33.3 million for 2013.
Product Line Sales
|
The following table summarizes the Company’s sales by major product
lines (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
%
|
|
|
2013
|
|
|
%
|
|
|
2013
|
|
|
2012
|
|
|
%
|
Product Line
|
|
|
4th Qtr.
|
|
|
4th Qtr.
|
|
|
Chg.
|
|
|
3rd Qtr.
|
|
|
Chg.
|
|
|
Year
|
|
|
Year
|
|
|
Chg.
|
Greatbatch Medical
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardiac/Neuromodulation
|
|
|
$
|
85,408
|
|
|
|
$
|
72,930
|
|
|
|
17
|
%
|
|
|
$
|
86,302
|
|
|
|
(1
|
)%
|
|
|
$
|
325,412
|
|
|
|
$
|
306,669
|
|
|
|
6
|
%
|
Orthopaedic
|
|
|
38,204
|
|
|
|
30,982
|
|
|
|
23
|
%
|
|
|
30,079
|
|
|
|
27
|
%
|
|
|
130,247
|
|
|
|
122,061
|
|
|
|
7
|
%
|
Portable Medical
|
|
|
18,367
|
|
|
|
22,313
|
|
|
|
(18
|
)%
|
|
|
19,320
|
|
|
|
(5
|
)%
|
|
|
78,743
|
|
|
|
81,659
|
|
|
|
(4
|
)%
|
Vascular
|
|
|
13,205
|
|
|
|
14,189
|
|
|
|
(7
|
)%
|
|
|
12,279
|
|
|
|
8
|
%
|
|
|
48,357
|
|
|
|
51,980
|
|
|
|
(7
|
)%
|
Energy
|
|
|
13,463
|
|
|
|
13,042
|
|
|
|
3
|
%
|
|
|
13,625
|
|
|
|
(1
|
)%
|
|
|
52,488
|
|
|
|
54,066
|
|
|
|
(3
|
)%
|
Other
|
|
|
7,086
|
|
|
|
4,942
|
|
|
|
43
|
%
|
|
|
5,447
|
|
|
|
30
|
%
|
|
|
25,655
|
|
|
|
27,287
|
|
|
|
(6
|
)%
|
Total Greatbatch Medical
|
|
|
175,733
|
|
|
|
158,398
|
|
|
|
11
|
%
|
|
|
167,052
|
|
|
|
5
|
%
|
|
|
660,902
|
|
|
|
643,722
|
|
|
|
3
|
%
|
QiG
|
|
|
886
|
|
|
|
788
|
|
|
|
12
|
%
|
|
|
678
|
|
|
|
31
|
%
|
|
|
3,043
|
|
|
|
2,455
|
|
|
|
24
|
%
|
Total Sales
|
|
|
$
|
176,619
|
|
|
|
$
|
159,186
|
|
|
|
11
|
%
|
|
|
$
|
167,730
|
|
|
|
5
|
%
|
|
|
$
|
663,945
|
|
|
|
$
|
646,177
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Organic Constant Currency Sales Growth
|
|
|
13
|
%
|
|
|
(2
|
)%
|
|
|
|
|
|
5
|
%
|
|
|
|
|
|
5
|
%
|
|
|
0
|
%
|
|
|
|
Orthopaedic Organic Constant Currency Sales Growth
|
|
|
33
|
%
|
|
|
0
|
%
|
|
|
|
|
|
22
|
%
|
|
|
|
|
|
20
|
%
|
|
|
(8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Line Sales Highlights
Cardiac/neuromodulation sales for the fourth quarter and full-year 2013
increased 17% and 6%, respectively, over the prior year periods. This
growth was driven by stronger market performance and continued deepening
relationships with our OEM partners. More specifically, we experienced
strong growth in batteries, capacitors, leads, and assembly revenue. We
continue to see an increased pace of product development opportunities
from our cardiac customers. We believe that these opportunities,
combined with our increased sales and marketing resources, will allow
the Company to continue to grow this product line faster than the
underlying market.
Orthopaedic sales of $38.2 million and $130.2 million for the fourth
quarter and year-to-date periods of 2013 increased 23% and 7%,
respectively, in comparison to the fourth quarter and full-year of 2012.
During the first quarter of 2013, the Company divested certain non-core
orthopaedic product lines, which reduced fourth quarter revenue by $3
million and full-year 2013 orthopaedic revenue by approximately $15
million, in comparison to the prior year periods. Additionally, foreign
currency exchange rate fluctuations benefited current quarter and
full-year orthopaedic revenue by approximately $1 million and $2
million, respectively, in comparison to the prior year. On a constant
currency organic basis, orthopaedic product line sales increased 33% and
20% in comparison to the prior year fourth quarter and full-year,
respectively. These organic constant currency improvements were across
all orthopaedic products and were above market growth rates primarily
due to our increased sales and marketing efforts, customer market share
gains, customer product launches, as well as the release of backlog
built up as a result of our Swiss orthopaedic facility consolidation
near the end of 2012.
Full-year 2013 vascular sales decreased $3.6 million in comparison to
the prior year reflecting the previously communicated voluntary recall
of two vascular medical devices in the fourth quarter of 2012.
Fourth quarter and full-year 2013 portable medical sales decreased $3.9
million and $2.9 million, respectively, compared to their respective
2012 periods. During the second half of 2013, this product line was
impacted by our increased pricing discipline which resulted in the loss
of some low-margin business. We expect these factors to continue to
impact the year over year comparisons for this product line for the next
three quarters. We believe that we can return this product line back to
historical growth once we are past this period of difficult comparisons.
Fourth quarter other Greatbatch Medical revenue, which includes sales to
our military and environmental customers, increased $2.1 million in
comparison to the prior year fourth quarter but declined $1.6 million
when comparing the year-to-date periods. These variances were primarily
due to the timing of customer orders.
QiG revenue includes sales of neural interface technology, components
and systems to the neuroscience and clinical markets. The 24% revenue
growth for 2013 in comparison to 2012 was primarily due to having a full
year of sales from NeuroNexus Technologies, Inc., which was acquired in
February 2012, as well as the higher growth characteristics of the
neuroscience and clinical markets.
Financial Guidance
|
|
|
|
|
Greatbatch estimates the following for 2014:
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
|
$685 - $705 million
|
|
|
|
|
|
GAAP Operating Income as a % of Sales
|
|
|
|
11.0% - 11.5%
|
Adjusted Operating Income as a % of Sales
|
|
|
|
13.0% - 13.3%
|
|
|
|
|
|
Capital Expenditures
|
|
|
|
$25 - $35 million
|
GAAP Effective Tax Rate
|
|
|
|
34% - 35%
|
|
|
|
|
|
GAAP Diluted EPS
|
|
|
|
$1.94 - $1.99
|
Adjusted Diluted EPS
|
|
|
|
$2.25 - $2.35
|
|
|
|
|
|
Adjusted operating income for 2014 is expected to consist of GAAP
operating income excluding items such as acquisition, consolidation,
integration and asset disposition/write-down charges totaling
approximately $12 million to $15 million. The after tax impact of these
adjustments is estimated to be $7.5 million to $10 million or $0.31 to
$0.35 per share. The current expected GAAP effective tax rate for 2014
does not include the benefit of the U.S. R&D tax credit, which expired
at the end of 2013. If reinstated, our 2014 GAAP effective tax rate
could be lowered to 32% to 33%.
Conference Call
The Company will host a conference call on Tuesday, February 25, 2014 at
8:30 a.m. E.T. to discuss these results. The scheduled conference call
will be webcast live and is accessible through the Company’s website at www.greatbatch.com
or by dialing 800-299-9086 and the participant passcode is 81394130. An
audio replay will also be available beginning from 12:30 p.m. E.T. on
February 25, 2014 until March 4, 2014. To access the replay, dial
888-286-8010 and enter the pass code 25822735.
About Greatbatch, Inc.
Greatbatch, Inc. (NYSE:GB) provides top-quality technologies to
industries that depend on reliable, long-lasting performance through its
brands Greatbatch Medical, Electrochem and QiG Group. The Company
develops and manufactures critical medical device technologies for the
cardiac, neuromodulation, vascular and orthopaedic markets; and
batteries for high-end niche applications in the portable medical,
energy, military, and environmental markets. Additional information is
available at www.greatbatch.com.
Use of Non-GAAP Financial Information
In addition to our results reported in accordance with generally
accepted accounting principles (“GAAP”), we provide adjusted operating
income and margin, adjusted net income, adjusted earnings per diluted
share, adjusted EBITDA and organic constant currency growth rates. These
adjusted amounts, other than adjusted EBITDA and organic constant
currency growth rates, consist of GAAP amounts excluding the following
adjustments to the extent occurring during the period: (i)
acquisition-related charges, (ii) facility consolidation, optimization,
manufacturing transfer and system integration charges, (iii) asset
write-down and disposition charges, (iv) severance charges in connection
with corporate realignments or a reduction in force (v) litigation
charges and gains, (vi) the impact of certain non-cash charges to
interest expense, (vii) unusual or infrequently occurring items, (viii)
certain R&D expenditures (such as medical device DVT expenses in
connection with developing our neuromodulation platform), (ix) gain/loss
on the sale of investments, (x) the income tax (benefit) related to
these adjustments and (xi) certain tax charges related to the
consolidation of our Swiss Orthopaedic facility. Adjusted earnings per
diluted share were calculated by dividing adjusted net income by diluted
weighted average shares outstanding. Adjusted EBITDA consists of
adjusted operating income excluding GAAP depreciation and amortization
less adjustments included in GAAP depreciation and amortization already
excluded from adjusted operating income. To calculate organic constant
currency growth rates that exclude the impact of changes in foreign
currency exchange rates, as well as the impact of any acquisitions or
divestitures of product lines on sales growth rates, we convert current
period sales from local currency to U.S. dollars using the previous
periods foreign currency exchange rates and exclude the amount of sales
acquired/divested during the period from the current/previous period
amounts, respectively. We believe that the presentation of adjusted
operating income and margin, adjusted net income, adjusted diluted
earnings per share, adjusted EBITDA and organic constant currency growth
rates provides important supplemental information to management and
investors seeking to understand the financial and business trends
relating to our financial condition and results of operations.
Forward-Looking Statements
Some of the statements in this press release, including the information
provided under the caption “Financial Guidance,” are “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 number of risks and uncertainties. These
forward-looking statements can be identified by terminology such as
“may,” “will,” “should,” “could,” “expects,” “intends,” “plans,”
“anticipates,” “believes,” “estimates,” “predicts,” “potential,” or
“continue,” or variations or the negative of these terms or other
comparable terminology. These forward-looking statements are based on
the Company’s current expectations. The Company’s actual results could
differ materially from those stated or implied in such forward-looking
statements. Risks and uncertainties that could cause actual results to
differ materially from those stated or implied by such forward-looking
statements include, among others, the following matters affecting the
Company: our dependence upon a limited number of customers; customer
ordering patterns; product obsolescence; our inability to market current
or future products; pricing/vertical integration pressure from
customers; our ability to timely and successfully implement our cost
reduction and plant consolidation initiatives (including the
consolidation of our Swiss orthopaedic operations); our reliance on
third party suppliers for raw materials, products and subcomponents; our
inability to maintain high quality standards for our products;
challenges to our intellectual property rights; product liability
claims; our inability to successfully consummate and integrate
acquisitions and to realize synergies; our unsuccessful expansion into
new markets; our ability to realize a return on our substantial RD&E
investments, including system and device products; changes in and
challenges related to compliance with governmental laws and regulations,
including regulations of the U.S. Food and Drug Administration and
foreign government agencies regulating medical device approvals; our
inability to obtain licenses to key technology; regulatory changes or
consolidation in the healthcare industry; global economic factors
including currency exchange rates and interest rates; the resolution of
various legal actions and other risks and uncertainties described in the
Company’s Annual Report on Form 10-K and in other periodic filings with
the Securities and Exchange Commission. The Company assumes no
obligation to update forward-looking statements in this press release
whether to reflect changed assumptions, the occurrence of unanticipated
events or changes in future operating results, financial conditions or
prospects, or otherwise.
|
|
|
|
|
|
|
Table A: Operating Income Reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Greatbatch Medical
|
|
|
QiG
|
|
|
|
Unallocated
|
|
|
|
Total
|
|
|
|
Jan. 3,
|
|
|
Dec. 28,
|
|
|
Jan. 3,
|
|
|
Dec. 28,
|
|
|
Jan. 3,
|
|
|
Dec. 28,
|
|
|
Jan. 3,
|
|
|
Dec. 28,
|
(dollars in thousands)
|
|
|
2014
|
|
|
2012
|
|
|
2014
|
|
|
2012
|
|
|
2014
|
|
|
2012
|
|
|
2014
|
|
|
2012
|
Sales
|
|
|
$
|
175,733
|
|
|
|
$
|
158,398
|
|
|
|
$
|
886
|
|
|
|
$
|
788
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
$
|
176,619
|
|
|
|
$
|
159,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) as reported
|
|
|
$
|
27,210
|
|
|
|
$
|
13,123
|
|
|
|
$
|
(8,806
|
)
|
|
|
$
|
(6,856
|
)
|
|
|
$
|
(5,541
|
)
|
|
|
$
|
(4,862
|
)
|
|
|
$
|
12,863
|
|
|
|
$
|
1,405
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical device DVT expenses (RD&E)
|
|
|
—
|
|
|
|
—
|
|
|
|
1,314
|
|
|
|
1,351
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,314
|
|
|
|
1,351
|
|
Consolidation and optimization costs
|
|
|
4,151
|
|
|
|
17,974
|
|
|
|
6
|
|
|
|
—
|
|
|
|
266
|
|
|
|
274
|
|
|
|
4,423
|
|
|
|
18,248
|
|
Acquisition and integration expenses (income)
|
|
|
98
|
|
|
|
249
|
|
|
|
(260
|
)
|
|
|
(77
|
)
|
|
|
—
|
|
|
|
1
|
|
|
|
(162
|
)
|
|
|
173
|
|
Asset dispositions, severance and other
|
|
|
1,048
|
|
|
|
101
|
|
|
|
114
|
|
|
|
(193
|
)
|
|
|
(193
|
)
|
|
|
36
|
|
|
|
969
|
|
|
|
(56
|
)
|
Adjusted operating income (loss)
|
|
|
$
|
32,507
|
|
|
|
$
|
31,447
|
|
|
|
$
|
(7,632
|
)
|
|
|
$
|
(5,775
|
)
|
|
|
$
|
(5,468
|
)
|
|
|
$
|
(4,551
|
)
|
|
|
$
|
19,407
|
|
|
|
$
|
21,121
|
|
Adjusted operating margin
|
|
|
18.5
|
%
|
|
|
19.9
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
N/A
|
|
|
|
11.0
|
%
|
|
|
13.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
Greatbatch Medical
|
|
|
QiG
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
Jan. 3,
|
|
|
Dec. 28,
|
|
|
Jan. 3,
|
|
|
Dec. 28,
|
|
|
Jan. 3,
|
|
|
Dec. 28,
|
|
|
Jan. 3,
|
|
|
Dec. 28,
|
(dollars in thousands)
|
|
|
2014
|
|
|
2012
|
|
|
2014
|
|
|
2012
|
|
|
2014
|
|
|
2012
|
|
|
2014
|
|
|
2012
|
Sales
|
|
|
$
|
660,902
|
|
|
|
$
|
643,722
|
|
|
|
$
|
3,043
|
|
|
|
$
|
2,455
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
$
|
663,945
|
|
|
|
$
|
646,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) as reported
|
|
|
$
|
111,805
|
|
|
|
$
|
79,093
|
|
|
|
$
|
(30,484
|
)
|
|
|
$
|
(32,554
|
)
|
|
|
$
|
(19,982
|
)
|
|
|
$
|
(20,718
|
)
|
|
|
$
|
61,339
|
|
|
|
$
|
25,821
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory step-up amortization (COS)
|
|
|
—
|
|
|
|
532
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
532
|
|
Medical device DVT expenses (RD&E)
|
|
|
—
|
|
|
|
—
|
|
|
|
5,793
|
|
|
|
5,190
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,793
|
|
|
|
5,190
|
|
Consolidation and optimization costs
|
|
|
13,388
|
|
|
|
34,372
|
|
|
|
86
|
|
|
|
6
|
|
|
|
1,284
|
|
|
|
4,670
|
|
|
|
14,758
|
|
|
|
39,048
|
|
Acquisition and integration expenses
|
|
|
187
|
|
|
|
1,287
|
|
|
|
(690
|
)
|
|
|
167
|
|
|
|
1
|
|
|
|
6
|
|
|
|
(502
|
)
|
|
|
1,460
|
|
Asset dispositions, severance and other
|
|
|
1,187
|
|
|
|
1,073
|
|
|
|
540
|
|
|
|
57
|
|
|
|
(193
|
)
|
|
|
708
|
|
|
|
1,534
|
|
|
|
1,838
|
|
Adjusted operating income (loss)
|
|
|
$
|
126,567
|
|
|
|
$
|
116,357
|
|
|
|
$
|
(24,755
|
)
|
|
|
$
|
(27,134
|
)
|
|
|
$
|
(18,890
|
)
|
|
|
$
|
(15,334
|
)
|
|
|
$
|
82,922
|
|
|
|
$
|
73,889
|
|
Adjusted operating margin
|
|
|
19.2
|
%
|
|
|
18.1
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
12.5
|
%
|
|
|
11.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table B: Net Income (Loss) and Diluted EPS Reconciliation
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Year ended
|
|
|
|
January 3, 2014
|
|
|
December 28, 2012
|
|
|
January 3, 2014
|
|
|
December 28, 2012
|
(in thousands except per share amounts)
|
|
|
Net
Income
|
|
|
Impact
Per
Diluted
Share
|
|
|
Net
Income (Loss)
|
|
|
Impact
Per
Diluted
Share
|
|
|
Net
Income
|
|
|
Impact
Per
Diluted
Share
|
|
|
Net
Income (Loss)
|
|
|
Impact
Per
Diluted
Share
|
Net income (loss) as reported
|
|
|
$
|
9,781
|
|
|
|
$
|
0.38
|
|
|
|
$
|
(5,556
|
)
|
|
|
$
|
(0.23
|
)
|
|
|
$
|
36,267
|
|
|
|
$
|
1.43
|
|
|
|
$
|
(4,799
|
)
|
|
|
$
|
(0.20
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory step-up amortization (COS)(a)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
346
|
|
|
|
0.01
|
|
Medical device DVT expenses (RD&E)(a)
|
|
|
854
|
|
|
|
0.03
|
|
|
|
879
|
|
|
|
0.04
|
|
|
|
3,765
|
|
|
|
0.15
|
|
|
|
3,374
|
|
|
|
0.14
|
|
Consolidation and optimization costs(a)
|
|
|
2,853
|
|
|
|
0.11
|
|
|
|
13,900
|
|
|
|
0.58
|
|
|
|
10,602
|
|
|
|
0.42
|
|
|
|
28,934
|
|
|
|
1.21
|
|
Acquisition and integration expenses (income)(a)
|
|
|
(105
|
)
|
|
|
—
|
|
|
|
112
|
|
|
|
—
|
|
|
|
(326
|
)
|
|
|
(0.01
|
)
|
|
|
949
|
|
|
|
0.04
|
|
Asset dispositions, severance and other(a)
|
|
|
608
|
|
|
|
0.02
|
|
|
|
(44
|
)
|
|
|
—
|
|
|
|
997
|
|
|
|
0.04
|
|
|
|
1,186
|
|
|
|
0.05
|
|
Loss on cost and equity method investments, net(a)(b)
|
|
|
43
|
|
|
|
—
|
|
|
|
297
|
|
|
|
0.01
|
|
|
|
451
|
|
|
|
0.02
|
|
|
|
69
|
|
|
|
—
|
|
CSN conversion option discount and deferred fee accelerated
amortization(a)(c)
|
|
|
—
|
|
|
|
—
|
|
|
|
1,821
|
|
|
|
0.08
|
|
|
|
3,007
|
|
|
|
0.12
|
|
|
|
6,234
|
|
|
|
0.26
|
|
2012 R&D Tax Credit(d)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,600
|
)
|
|
|
(0.06
|
)
|
|
|
—
|
|
|
|
—
|
|
Swiss tax impact(e)
|
|
|
—
|
|
|
|
—
|
|
|
|
1,182
|
|
|
|
0.05
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,190
|
|
|
|
0.26
|
|
Adjusted net income and diluted EPS(f)
|
|
|
$
|
14,034
|
|
|
|
$
|
0.55
|
|
|
|
$
|
12,591
|
|
|
|
$
|
0.53
|
|
|
|
$
|
53,163
|
|
|
|
$
|
2.10
|
|
|
|
$
|
42,483
|
|
|
|
$
|
1.77
|
|
Adjusted diluted weighted average shares(g)
|
|
|
25,510
|
|
|
|
|
|
|
23,956
|
|
|
|
|
|
|
25,323
|
|
|
|
|
|
|
23,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Net of tax amounts computed using a 35% U.S. and France statutory
tax rates for the 2013 and 2012 periods and a 0% and 22.5%
Switzerland tax rate for the 2013 and 2012 periods, respectively.
|
(b)
|
|
Pre-tax amounts are $66 thousand and $694 thousand for the 2013
quarter and full-year, respectively, and $456 thousand and $106
thousands for the 2012 quarter and full-year periods, respectively.
|
(c)
|
|
Pre-tax amount is $4.6 million for the 2013 full-year period and
$2.8 million and $9.6 million for the 2012 quarter and full-year
periods, respectively.
|
(d)
|
|
Relates to the 2012 portion of the R&D tax credit which was
reinstated in the first quarter of 2013 retroactive back to the
beginning of 2012. As required, the impact of the R&D tax credit
relating to 2012 was recognized in 2013.
|
(e)
|
|
Relates to the loss of our Swiss tax holiday due to our decision
to transfer manufacturing out of Switzerland, as well as the
establishment of a valuation allowance on our Swiss deferred tax
assets as it is more likely than not that they will not be fully
realized.
|
(f)
|
|
The per share data in this table has been rounded to the nearest
$0.01 and therefore may not sum to the total.
|
(g)
|
|
Adjusted diluted weighted average shares for the fourth quarter
and full-year periods of 2012 includes 295 and 363 thousand
shares, respectively, of dilution related to outstanding stock
incentive awards that were not dilutive for GAAP EPS purposes.
|
|
|
|
|
|
|
|
|
|
|
|
Table C: Adjusted EBITDA Reconciliation
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Year ended
|
|
|
|
|
January 3,
|
|
|
December 28,
|
|
|
January 3,
|
|
|
December 28,
|
(dollars in thousands)
|
|
|
2014
|
|
|
2012
|
|
|
2014
|
|
|
2012
|
Sales
|
|
|
$
|
176,619
|
|
|
|
$
|
159,186
|
|
|
|
$
|
663,945
|
|
|
|
$
|
646,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating income*
|
|
|
$
|
19,407
|
|
|
|
$
|
21,121
|
|
|
|
$
|
82,922
|
|
|
|
$
|
73,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: Depreciation and amortization
|
|
|
9,308
|
|
|
|
12,298
|
|
|
|
35,966
|
|
|
|
46,368
|
|
Less adjustments included in depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory step-up amortization
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
532
|
|
Consolidation and optimization accelerated depreciation
|
|
|
—
|
|
|
|
2,911
|
|
|
|
—
|
|
|
|
7,380
|
|
Adjusted EBITDA
|
|
|
$
|
28,715
|
|
|
|
$
|
30,508
|
|
|
|
$
|
118,888
|
|
|
|
$
|
112,345
|
|
Adjusted EBITDA as a % of sales
|
|
|
16.3
|
%
|
|
|
19.2
|
%
|
|
|
17.9
|
%
|
|
|
17.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Refer to table A for a reconciliation of GAAP to adjusted
amounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - Unaudited
|
(in thousands except per share data)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Year Ended
|
|
|
|
January 3,
|
|
|
December 28,
|
|
|
January 3,
|
|
|
December 28,
|
|
|
|
2014
|
|
|
2012
|
|
|
2014
|
|
|
2012
|
Sales
|
|
|
$
|
176,619
|
|
|
|
$
|
159,186
|
|
|
|
$
|
663,945
|
|
|
|
$
|
646,177
|
|
Cost of sales
|
|
|
119,234
|
|
|
|
107,312
|
|
|
|
444,632
|
|
|
|
444,528
|
|
Gross profit
|
|
|
57,385
|
|
|
|
51,874
|
|
|
|
219,313
|
|
|
|
201,649
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
24,198
|
|
|
|
20,939
|
|
|
|
88,107
|
|
|
|
80,992
|
|
Research, development and engineering costs, net
|
|
|
15,094
|
|
|
|
11,165
|
|
|
|
54,077
|
|
|
|
52,490
|
|
Other operating expenses, net
|
|
|
5,230
|
|
|
|
18,365
|
|
|
|
15,790
|
|
|
|
42,346
|
|
Total operating expenses
|
|
|
44,522
|
|
|
|
50,469
|
|
|
|
157,974
|
|
|
|
175,828
|
|
Operating income
|
|
|
12,863
|
|
|
|
1,405
|
|
|
|
61,339
|
|
|
|
25,821
|
|
Interest expense
|
|
|
1,313
|
|
|
|
4,879
|
|
|
|
11,261
|
|
|
|
18,055
|
|
Interest income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
Loss on cost and equity method investments, net
|
|
|
66
|
|
|
|
456
|
|
|
|
694
|
|
|
|
106
|
|
Other expense, net
|
|
|
267
|
|
|
|
157
|
|
|
|
546
|
|
|
|
931
|
|
Income (loss) before provision for income taxes
|
|
|
11,217
|
|
|
|
(4,087
|
)
|
|
|
48,838
|
|
|
|
6,730
|
|
Provision for income taxes
|
|
|
1,436
|
|
|
|
1,469
|
|
|
|
12,571
|
|
|
|
11,529
|
|
Net income (loss)
|
|
|
$
|
9,781
|
|
|
|
$
|
(5,556
|
)
|
|
|
$
|
36,267
|
|
|
|
$
|
(4,799
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$
|
0.40
|
|
|
|
$
|
(0.23
|
)
|
|
|
$
|
1.51
|
|
|
|
$
|
(0.20
|
)
|
Diluted
|
|
|
$
|
0.38
|
|
|
|
$
|
(0.23
|
)
|
|
|
$
|
1.43
|
|
|
|
$
|
(0.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
24,235
|
|
|
|
23,661
|
|
|
|
23,991
|
|
|
|
23,584
|
|
Diluted
|
|
|
25,510
|
|
|
|
23,661
|
|
|
|
25,323
|
|
|
|
23,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED BALANCE SHEETS - Unaudited
|
(in thousands)
|
|
|
|
|
|
|
|
As of
|
ASSETS
|
|
|
January 3,
|
|
|
December 28,
|
|
|
2014
|
|
|
2012
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$
|
35,465
|
|
|
|
$
|
20,284
|
|
Accounts receivable, net
|
|
|
113,679
|
|
|
|
120,923
|
|
Inventories
|
|
|
118,358
|
|
|
|
106,612
|
|
Refundable income taxes
|
|
|
2,306
|
|
|
|
—
|
|
Deferred income taxes
|
|
|
6,008
|
|
|
|
7,678
|
|
Prepaid expenses and other current assets
|
|
|
6,717
|
|
|
|
12,636
|
|
Total current assets
|
|
|
282,533
|
|
|
|
268,133
|
|
Property, plant and equipment, net
|
|
|
145,773
|
|
|
|
150,893
|
|
Amortizing intangible assets, net
|
|
|
76,122
|
|
|
|
87,345
|
|
Indefinite-lived intangible assets
|
|
|
20,288
|
|
|
|
20,828
|
|
Goodwill
|
|
|
346,656
|
|
|
|
349,035
|
|
Deferred income taxes
|
|
|
2,933
|
|
|
|
2,534
|
|
Other assets
|
|
|
16,398
|
|
|
|
11,107
|
|
Total assets
|
|
|
$
|
890,703
|
|
|
|
$
|
889,875
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
Accounts payable
|
|
|
$
|
46,508
|
|
|
|
$
|
45,274
|
|
Income taxes payable
|
|
|
—
|
|
|
|
94
|
|
Deferred income taxes
|
|
|
613
|
|
|
|
874
|
|
Accrued expenses
|
|
|
44,681
|
|
|
|
45,515
|
|
Total current liabilities
|
|
|
91,802
|
|
|
|
91,757
|
|
Long-term debt
|
|
|
197,500
|
|
|
|
225,414
|
|
Deferred income taxes
|
|
|
52,012
|
|
|
|
82,462
|
|
Other long-term liabilities
|
|
|
7,334
|
|
|
|
9,382
|
|
Total liabilities
|
|
|
348,648
|
|
|
|
409,015
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
Preferred stock
|
|
|
—
|
|
|
|
—
|
|
Common stock
|
|
|
24
|
|
|
|
24
|
|
Additional paid-in capital
|
|
|
344,915
|
|
|
|
320,618
|
|
Treasury stock
|
|
|
(1,232
|
)
|
|
|
(452
|
)
|
Retained earnings
|
|
|
183,990
|
|
|
|
147,723
|
|
Accumulated other comprehensive income
|
|
|
14,358
|
|
|
|
12,947
|
|
Total stockholders’ equity
|
|
|
542,055
|
|
|
|
480,860
|
|
Total liabilities and stockholders’ equity
|
|
|
$
|
890,703
|
|
|
|
$
|
889,875
|
|
Source: Greatbatch, Inc.
Greatbatch, Inc.
Betsy Cowell, 214-618-4982
VP Finance and
Treasurer
ecowell@greatbatch.com