2014 Second Quarter Earnings Call July 31, 2014 1
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”, or “continue”, or variations or the negative of these terms or other 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 . 2
EARNINGS CALL PARTICIPANTS Thomas J. Hook President & CEO Michael Dinkins Executive Vice President & CFO Betsy Cowell Vice President Finance & Treasurer 3
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
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 $0.56 7% Adjusted ROIC 8.8% 8.4% 40 bps Operating Cash Flow $19.5 $(1.0) Fav * -0.4% organic constant currency sales growth ** See appendix for GAAP reconciliation 5
Q2 ORGANIC SALES GROWTH ($ 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% Total Greatbatch Medical 171,216 170,494 0% QiG 865 837 3% Total Sales $ 172,081 $ 171,331 0% Organic Constant Currency Sales Growth -% 6% 12% 14% Orthopaedic Organic Constant Currency Sales Growth 6
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 4 Quarters* ($ in millions) $ in millions CRM & Neuro Market Quarterly Trending GB Quarterly Trending 3,300 90 85 3,050 80 2,800 $ Millions $ Millions 75 2,550 70 65 2,300 60 2,050 55 1,800 50 CRMN CRMN Rolling 4 Qtr GB GB Rolling 4 Qtr *Public data through Q1 2014 reportable companies 7
Q2 PERFORMANCE Orthopaedics: (22% of total revenues; 12% organic constant currency growth) Growth across all product categories Expanding served customer base Greatbatch – Orthopaedics Sales Rolling 4 Quarters ($ in millions) 40.0 35.0 30.0 25.0 20.0 15.0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2012 2013 2014 8
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 revenues; 4% organic growth) Posted 9% growth from energy applications Gaining ground in rechargeable battery assemblies 9
STRATEGIC UPDATE Executing investments in capacity and capabilities aligning resources to meet customer needs Announced $45M investment in Tijuana Mexico to serve the vascular and portable medical markets Established a R&D hub in the Twin Cities area for Global R&D Creating the Commercial Operations hub at the global headquarters in Frisco, Texas AlgoVita, formally Algostim, progressing as expected FDA regulatory process proceeds as planned Granted CE Mark Delivering results consistent with our strategy, through first half 2014 8% organic constant currency revenue growth 15% adjusted EPS increase 9% adjusted EBITDA improvement 8.5 % adjusted ROIC … 60 basis point increase 10
FINANCIAL RESULTS 11
Q2 FINANCIAL RESULTS ($ in thousands except for EPS) Three Months Ended July 4, June 28, % April 4, % (Dollars in thousands, except per 2014 2013 Change 2014 Change share data) $172,081 $171,331 — % $174,281 Sales (1)% Organic Constant Currency Sales — Growth % 6 % 17 % $19,539 $17,135 $22,524 GAAP Operating Income 14% (13)% GAAP Operating Income as % of Sales 11.4 % 10.0 % 12.9 % $23,800 $22,192 $22,310 Adjusted Operating Income* 7% 7% Adjusted Operating Income as % of Sales 13.8 % 13.0 % 12.8 % $0.48 $0.39 $0.58 GAAP Diluted EPS 23% (17)% $0.60 $0.56 $0.54 Adjusted Diluted EPS* 7% 11% $33,109 $31,281 $31,562 Adjusted EBITDA* 6% 5% Adjusted EBITDA as a % Sales 19.2 % 18.3 % 18.1 % * Refer to Tables A, B and C at the end of this presentation for a reconciliation of GAAP to adjusted amounts. 12
Q2 VARIANCE ANALYSIS Adj. EPS Comments 2013 Adjusted EPS $ 0.56 0.03 Gross margin 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 adjusted tax rate Other (0.01) $0.01; offset by share count change ($0.03) $0.04 2014 Adjusted EPS $0.60 13
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 by share count change ($0.04) $0.15 2014 Adjusted EPS $1.14 14
Q2 OPERATING CASH FLOW ($ 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) Deferred income taxes (1.1) Changes in operating assets and liabilities: Accounts receivable (7.3) Inventories (2.6) Prepaid expenses and other current assets (1.6) Accounts payable 0.5 Accrued expenses 7.7 Income taxes payable (1.4) Net cash provided by operating activities $19.5 15
2014 GUIDANCE 16
2014 GUIDANCE ($ in millions except for EPS) 2013 2014 Guidance Change $685 – $705 3 – 6% Sales $663.9 13.0 – 13.3% Adjusted Operating Margin (1) 12.5% 50 - 80 bps $2.25 – $2.35 7 – 12% Adjusted Diluted EPS (1) $2.10 Adj. Operating Cash Flows (2) $85.5 $90 - $100 5 - 17% $25 – $35 Capex $18.6 34 - 88% ROIC 7.9% 9% 110 bps (1) Refer to Table D in the appendix for a reconciliation of GAAP to adjusted amounts (2) Excludes $28.8 million of tax payments on convertible notes in 2013. 17
APPENDIX 18
SELECTED JUNE YTD HIGHLIGHTS ($ 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 EPS** $1.14 $0.99 15% Adjusted ROIC 8.5% 7.9% 60 bps Operating Cash Flow $26.5 $(8.6) Fav * * Greatbatch organic growth rate: 7.6%; Orthopaedics organic growth rate: 15.9% ** See appendix for GAAP reconciliation 19
YTD ORGANIC GROWTH ($ 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% 28,307 22,873 24% Vascular Energy & Other 39,483 38,522 2% Total Greatbatch Medical 344,811 318,116 8% QiG 1,551 1,480 5% Total Sales $ 346,362 $ 319,596 8% Organic Constant Currency Sales Growth 8% 1% Orthopaedic Organic Constant Currency Sales Growth 16% 12% 20
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) Deferred income taxes (1.7) Changes in operating assets and liabilities: Accounts receivable (10.7) Inventories (2.1) Prepaid expenses and other current assets (0.1) Accounts payable (2.1) Accrued expenses (9.0) Income taxes payable 3.1 Net cash provided by operating activities $26.5 21
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