FOURTH QUARTER 2012 EARNINGS CALL February 25, 2013 - - PowerPoint PPT Presentation

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FOURTH QUARTER 2012 EARNINGS CALL February 25, 2013 - - PowerPoint PPT Presentation

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FOURTH QUARTER 2012 EARNINGS CALL February 25, 2013 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

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SLIDE 1

FOURTH QUARTER 2012 EARNINGS CALL

February 25, 2013

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SLIDE 2

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 number of risks and uncertainties. These statements can be identified by terminology such as “may,” “will,” “should,” “could,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential”, “variations”, or “continue” or the negative of these terms or

  • ther comparable terminology.

These 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. The company assumes no obligations to update forward-looking information, including information in this presentation, to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results, financial conditions, prospects or otherwise.

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SLIDE 3

EARNINGS CALL PARTICIPANTS

  • Thomas J. Hook
  • President & CEO
  • Michael Dinkins
  • Senior Vice President & CFO
  • Tom Mazza
  • Vice President & Corporate Controller

3

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SLIDE 4

AGENDA

  • Thomas J. Hook
  • Fourth Quarter 2012 Highlights
  • Strategic Focus
  • Michael Dinkins
  • Fourth Quarter 2012 Financial Results
  • Financial Guidance
  • Question & Answer

4

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SLIDE 5

Selected Q4 Highlights

($ in millions except for EPS)

4Q 2012 4Q 2011 Change Sales $159 $142 12% Adjusted Operating Margin 13.3% 11.1% 220bps Adjusted Diluted EPS $0.53 $0.39 36%

  • Adj. Operating Cash Flows (a)

$29 $33 (12%) Capex $7 $4 75%

  • Adj. ROIC

8.5% 6.8% 170bps

(a) Excludes impact of Other Operating Expenses and DVT expenses of $4m(2012) and $2m (2011). 5

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SLIDE 6

Strengthening Our Core, Expanding Our Pipeline

Pipeline

  • Sales & Marketing
  • Customer R&D projects

Core

  • IP portfolio
  • Mfg. excellence
  • New customers, expanded

geography

  • OEM funded research
  • Deepen relationships with

strategic OEMs through intellectual property and long term agreements

6

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SLIDE 7

7

Orthopaedic Update

  • Successfully completed customer supplier certification audits
  • Swiss manufacturing of reamers ceased January 31st
  • Mexico
  • First shipments out of Mexico made in February with

aggressive ramp-up plan in place

  • Additional low volume reamer models are still in transfer

process to be completed by May 2013

  • Fort Wayne –
  • Straight Reamer Handles validated and on track for February

shipments

  • Offset reamer handles and impactors currently going through

process validation

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SLIDE 8

STRATEGIC FOCUS

8

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SLIDE 9

STRATEGIC FOCUS

  • Strengthen Core Business
  • Sustainable 5% core organic sales growth opportunity
  • Improve earnings growth
  • Commercialize Algostim for additional upside

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SLIDE 10

STRATEGIC FOCUS

Strengthen Core Business

  • Driver of our financial performance
  • Protected by long-term contracts
  • Expanded Neuromodulation component agreement with key

customer

  • Quality system to support medical device growth
  • Enhanced Orthopaedic operating margins by divesting low margin

product lines and consolidation

  • Major plant consolidations completed; on target to achieve

productivity upside

10

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SLIDE 11

STRATEGIC FOCUS

Sustainable 5% core organic sales growth opportunity

  • Upside growth potential exists in each core market
  • New & optimized sales organization will drive productivity & new

contract wins…geographic expansion and new market segments

  • M&A will supplement organic growth strategy

11

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SLIDE 12

STRATEGIC FOCUS

Improve earnings growth

  • Driving operating margin improvement via:
  • Orthopaedic margin improvement
  • Manufacturing productivity improvements
  • Leveraging SG&A…ERP implementation
  • Partially offset by increased Sales & Marketing investment
  • Algostim product development spend decreasing in 2014
  • Future complete medical device development will be funded with 3rd

party development agreements

  • Continued pay for performance architecture

12

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SLIDE 13

STRATEGIC FOCUS

Commercialize Algostim for additional upside

  • Update at Investor Day on March 18
  • Represents upside to the core business growth

13

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SLIDE 14

STRATEGIC FOCUS

  • Strengthen Core Business
  • Sustainable 5% core organic sales growth opportunity
  • Improve earnings growth
  • Commercializing Algostim for additional upside

14

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SLIDE 15

FINANCIAL PERFORMANCE

15

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SLIDE 16

Selected Total Year Highlights

($ in millions except for EPS)

2012 2011 Change Sales $646 $569 14% Adjusted Operating Margin 11.4% 11.9%

  • 50bps

Adjusted Diluted EPS $1.77 $1.68 5%

  • Adj. Operating Cash Flows(a)

$80 $93 (14%) Capex $41 $22 86% ROIC 7.4% 7.3% 10bps

(a) Excludes Other Operating Expense and DVT expenses impact of $15m (2012) and $4m (2011).

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SLIDE 17

Organic Sales

17 % FX & Acquisition % 2011 2012 Change 2012 2012 Change Implantable Medical CRM/Neuromodulation $303,690 $309,124 2% $2,455 $306,669 1% Vascular 45,098 51,980 15%

  • 51,980

15% Orthopaedics 140,277 122,061

  • 13%

(6,300) 128,361

  • 8%

Total 489,065 483,165

  • 1%

(3,845) 487,010 0% Electrochem Portable Medical 9,609 81,659 750% 71,807 $9,852 3% Energy/Environmental 58,934 67,046 14% 4,837 62,209 6% Other 11,214 14,307 28% 5,731 8,576

  • 24%

Total 79,757 163,012 104% 82,375 80,637 1% Total Sales $568,822 $646,177 14% $78,530 $567,647 0% Product Lines

($ in thousands)

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SLIDE 18

2012 Variance Analysis

Adj EPS 2011 Results 1.68 $ Medical Devices Initiatives (0.17) Swiss Ortho Operating Issues (0.16) Investment in Sales & Marketing (0.10) Other 0.06 Performance Based Compensation 0.08 Volume/Productivity* 0.38 2012 Results 1.77 $ * Includes Impact of Acquistions

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SLIDE 19

2013 Outlook

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SLIDE 20

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Revenue

Organic growth 5% - 8%

Adjusted Operating Margin

12.0% - 12.5%

Other Metrics – Other operating expense $11.5m to $14.0m Capital expenditures $20m to $30m DVT of $4.8m to $5.8m (included in

  • ther operating expense)

2013 Guidance

Stronger second half performance Productivity and consolidation benefit Partially offset by:

  • Continue investment in sales and

marketing

  • Performance base compensation

Finishing 2012 initiatives Leverage existing capacity Completion of Algostim

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SLIDE 21

APPENDIX

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SLIDE 22

22

GAAP Reconciliation

Three months ended Implantable Medical Electrochem Unallocated Total

  • Dec. 28,
  • Dec. 30,
  • Dec. 28,
  • Dec. 30,
  • Dec. 28,
  • Dec. 30,
  • Dec. 28,
  • Dec. 30,

2012 2011 2012 2011 2012 2011 2012 2011 Sales $ 118,889 $ 121,292 $ 40,297 $ 20,454 $

  • $
  • $

159,186 $ 141,746 Operating income (loss) as reported $ 4,392 $ 13,784 $ 6,344 $ 2,075 $ (9,331) $ (3,317) $ 1,405 $ 12,542 Adjustments: Inventory step-up amortization (COS)

  • 177
  • 177

Medical device DVT expenses (RD&E) 1,351 2,270

  • 1,351

2,270 Consolidation and optimization costs 17,974

  • 274
  • 18,248
  • Integration expenses

(77)

  • 249
  • 1
  • 173
  • Asset dispositions, severance and
  • ther

(131) 152 39 607 36

  • (56)

759 Adjusted operating income (loss) $ 23,509 $ 16,206 $ 6,632 $ 2,859 $ (9,020) $ (3,317) $ 21,121 $ 15,748 Adjusted operating margin 19.8% 13.4% 16.5% 14.0% N/A N/A 13.3% 11.1% Medical device related adjusted expenses (excluding DVT) $ 6,313 $ 6,058 $

  • $
  • $
  • $
  • $

6,313 $ 6,058 Adjusted operating income excluding medical device initiatives $ 29,822 $ 22,264 $ 6,632 $ 2,859 $ (9,020) $ (3,317) $ 27,434 $ 21,806 Adjusted operating margin excluding medical device initiatives 25.1% 18.4% 16.5% 14.0% N/A N/A 17.2% 15.4%

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SLIDE 23

GAAP RECONCILIATON

Year ended Implantable Medical Electrochem Unallocated Total

  • Dec. 28,
  • Dec. 30,
  • Dec. 28,
  • Dec. 30,
  • Dec. 28,
  • Dec. 30,
  • Dec. 28,
  • Dec. 30,

2012 2011 2012 2011 2012 2011 2012 2011 Total sales $ 483,165 $ 489,065 $ 163,012 $ 79,757 $

  • $
  • $

646,177 $ 568,822 Operating income (loss) as reported $ 24,908 $ 62,461 $ 21,631 $ 14,965 $ (20,718) $ (15,727) $ 25,821 $ 61,699 Adjustments: Inventory step-up amortization (COS)

  • 532

177

  • 532

177 Medical device DVT expenses (RD&E) 5,190 5,133

  • 5,190
  • 5,133

Consolidation and optimization costs 34,378 425

  • 4,670
  • 39,048
  • 425

Integration expenses 167

  • 1,287
  • 6
  • 1,460
  • Asset dispositions, severance and
  • ther

247 51 883 117 708

  • 1,838
  • 168

Adjusted operating income (loss) $ 64,890 $ 68,070 $ 24,333 $ 15,259 $ (15,334) $ (15,727) $ 73,889 $ 67,602 Adjusted operating margin 13.4% 13.9% 14.9% 19.1% N/A N/A 11.4% 11.9% Medical device related adjusted expenses (excluding DVT) $ 28,453 $ 22,080 $

  • $
  • $
  • $
  • $

28,453 $ 22,080 Adjusted operating income excluding medical device initiatives $ 93,343 $ 90,150 $ 24,333 $ 15,259 $ (15,334) $ (15,727) $ 102,342 $ 89,682 Adjusted operating margin excluding medical device initiatives 19.3% 18.4% 14.9% 19.1% N/A N/A 15.8% 15.8%

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SLIDE 24

24

GAAP Reconciliation

Three months ended Year ended December 28, December 30, December 28, December 30, 2012 2011 2012 2011 Net income (loss) as reported $ (5,556) $ (0.23) $ 5,639 $ 0.24 $ (4,799) $ (0.20) $ 33,122 $ 1.40 Adjustments:(a) Inventory step-up amortization (COS)

  • 115
  • 346

0.01 115

  • Medical device DVT expenses (RD&E)

879 0.04 1,476 0.06 3,374 0.14 3,336 0.14 Consolidation and optimization costs 13,900 0.58

  • 28,934

1.21 276 0.01 Integration expenses 112

  • 949

0.04

  • Asset dispositions, severance and other

(44)

  • 493

0.02 1,186 0.05 109

  • (Gain) loss on cost and equity method

investments, net(b) 297 0.01

  • 69
  • (2,751)

(0.12) CSN conversion option discount amortization(c) 1,821 0.08 1,417 0.06 6,234 0.26 5,515 0.23 Swiss tax impact(d) 1,182 0.05

  • 6,190

0.26

  • Adjusted net income and diluted EPS(e)

$ 12,591 $ 0.53 $ 9,140 $ 0.39 $ 42,483 $ 1.77 $ 39,722 $ 1.68 Adjusted diluted weighted average shares (f) 23,956 23,607 23,947 23,636

(a) Net of tax amounts computed using U.S. and foreign statutory tax rates of 35% and 22.5%, respectively, for items incurred in those geographic locations. (b) Pre-tax amount is a loss of $456 thousand for the quarter and $106 thousand for the year-to-date periods for 2012 and a gain of $4.2 million for the year-to-date period of 2011. (c) Pre-tax amount is $2.8 million and $9.6 million for the 2012 quarter and year-to-date periods, respectively, and $2.2 million and $8.5 million for the 2011 quarter and year-to-date periods, respectively. (d) 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. (e) The per share data in this table has been rounded to the nearest $0.01 and therefore may not sum to the total. (f) Weighted average diluted shares for the fourth quarter and year-to-date periods of 2012 includes 295 thousand and 363 thousand shares, respectively, of dilution related to outstanding stock incentive awards that were not dilutive for GAAP diluted EPS purposes.

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SLIDE 25

CONTACT INFORMATION

Michael Dinkins Senior Vice President & CFO Greatbatch 2595 Dallas Parkway Suite 310 Frisco, Texas 75034 214 618 5242 mdinkins@greatbatch.com www.greatbatch.com For Investor Day Invitation Please contact: Lynn Bergman lbergman@greatbatch.com 214 618 5243 25