THIRD QUARTER 2013 EARNINGS CALL October 24, 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 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 - Third Quarter 2013 Highlights Michael Dinkins - Third Quarter 2013 Financial Results - Guidance Update Question & Answer 4
Selected Q3 Highlights ($ in millions except for EPS) Q3 2013 Q3 2012 Change Sales $167.7 $161.3 4% Adjusted EBITDA * $30.8 $28.0 10% Adjusted EBITDA Margin * 18.4% 17.3% 110bps Adjusted Operating Margin * 13.1% 11.6% 150bps Adjusted Diluted EPS * $0.57 $0.46 24% Capex $3.4 $9.5 (64%) Adjusted ROIC 8.6% 7.5% 110bps Cash Flow ** $24.7 $16.0 $8.7 • Cash Flow from operating activities; excluding convertible note tax payment totaling $8M for the quarter (**) • See appendix for GAAP reconciliation (*) 5
Q3 2013 Organic Growth ($ in millions) Q3 Q3 % Organic* Product Lines 2013 2012 Change Growth Implantable Medical Cardiac/Neuromodulation $86,980 $80,246 8% 8% Orthopaedics 30,079 27,173 11% 22% Vascular 12,279 13,674 -10% -10% Total Implantable Medical 129,338 121,093 7% 9% Electrochem Portable Medical 19,320 20,219 -4% -4% Energy 13,625 13,054 4% 4% Other 5,447 6,974 -22% -22% Total Electrochem 38,392 40,247 -5% -5% Total Sales $167,730 $161,340 4% 5% • Net of divestiture of non-core products - $3.2M • FX impact – favorable $1M 6 Confidential
Q3 Performance Cardiac/Neuromodulation: (52% total revenues; 8% organic growth) Expanded and better managed sales force Continued CRM and Neuromodulation IPG component deal success - Leveraging IP and manufacturing excellence Continue to outperform market grow th Greatbatch CRM/Neuro Companies Sales – Rolling 4 Quarters Sales - Rolling 4 Quarters* $ in millions $ in millions 90.0 $3,250 $3,200 85.0 $3,150 80.0 $3,100 $3,050 75.0 $3,000 70.0 $2,950 65.0 $2,900 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q $2,850 2011 2012 2013 * Public data through Q2 2013 7
Q3 Performance Orthopaedics: ( 18% of total revenues; 22% organic growth) Expanded and better managed sales force New wins in MIS hip arthroplasty Enhanced ability to expand customer base in cases and trays Good market growth in unit sales for large joints (e.g. Hips) … ~6 - 7%* on unit basis * source: Millennium Research 2012 8
Q3 Performance Portable Medical: (12% total revenues; -4% organic growth) Driving improved product line profitability/ROIC … Loss of low margin book of business impacting organic growth currently and into 2014 New product introductions in Q4 as expected Energy, Environmental and Military: (11% total revenues; -5% organic growth) Energy customers ordering patterns normalizing … 4% improvement Environmental and Military driven by reduced government funding on certain projects. Vascular : (7% total revenues; -10% organic growth) Sales force success with existing products targeting underpenetrated markets Expect to re- introduce voluntarily recalled product in Q4 … will not materially impact current year revenue 9
UPDATE on INITIATIVES 10
Initiatives – Update Algostim √ Design verification and testing progressing as planned √ Regulatory filings (FDA/CE Mark) progressing as planned √ Operational processes advancing as planned √ Commercialization process proceeding as planned Orthopaedics √ Fully operational + Exceeding financial expectations √ Progressively reducing backlog + Implant, cases and tray market share gains Productivity and Focus √ Functional alignment completed √ Business teams progressing as planned √ Sales force expansion and productivity 11
FINANCIAL PERFORMANCE 12
Q3 Financial Results ($ in thousands except for EPS) Three Months Ended September 27, September 28, % June 28, % (Dollars in thousands, except per share data) 2013 2012 Change 2013 Change Sales $ $ $ 171,331 167,730 161,340 4% -2% Constant Currency Organic Sales Growth 5% 8% 6% GAAP Operating Income $ $ $ 17,002 2,127 NA 17,135 -1% GAAP Operating Income as % of Sales 10.1% 1.3% 10.0% Adjusted Operating Income* $ $ 18% $ 22,012 18,664 22,192 -1% Adjusted Operating Income as % of Sales 13.1% 11.6% 13.0% GAAP Diluted EPS $ 0.44 $ (0.32) NA $ 0.39 13% Adjusted Diluted EPS* $ 0.57 $ 0.46 24% $ 0.56 2% Adjusted EBITDA* $ 30,817 $ 27,953 10% $ 31,281 -1% Adjusted EBITDA as a % Sales 18.4% 17.3% 18.3% * Refer to Tables A, B and C at the end of this release for a reconciliation of GAAP to adjusted amounts. 13
Q3 Variance Analysis Adj. EPS Comments Q3 2012 Adjusted EPS $ 0.46 Gross margin improvement $0.12; Swiss orthopaedic consolidations $0.06; medical Productivity 0.21 device initiatives $0.03 (0.08) Paid 62% targeted bonus in 2012 Performance based compensation Sales and marketing investments (0.02) R&D tax credit $0.02; interest expense $0.02; offset by share count change ($0.03) and NRE Other 0.00 timing ($0.01) $0.11 Q3 2013 Adjusted EPS $0.57 14
Operating Cash Flow ($ in thousands) Cash flows from operating activities Nine months ended September 27, 2013 Net income $26,486 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 26,658 Debt related amortization included in interest expense 6,171 Stock-based compensation 11,413 Other non-cash losses 184 Deferred income taxes (31,197) Changes in operating assets and liabilities, net of acquisitions: Accounts receivable (9,901) Inventories (15,999) Prepaid expenses and other current assets 1,010 Accounts payable (7,220) Accrued expenses (1,732) Income taxes payable 10,202 Net cash provided by operating activities $16,075 15
2013 GUIDANCE 16
2013 Guidance ($ in millions except for EPS) 2012 2013E Update/Comments $660 – $680 Guiding toward the lower end Sales $646 of the range 12% – 12.5% ~13% Adjusted Operating Margin 11.4% Adjusted Diluted EPS $1.77 $2.05 - $2.15 Middle to upper end ~$60 - $70 Targeted initiatives on track Operating Cash Flows (1) $80 with total year objectives $20 – $30 No change Capex $41 ROIC 7.4% ~8% No change (1) Excludes the impact of other operating and DVT expenses of $10M (2013) and $15M (2012) and the deferred tax payment on the redemption of our convertible debt in 2013 of $30M. 17
APPENDIX 18
Selected September YTD Highlights ($ in millions except for EPS) 2013 2012 Change Sales $487.3 $487.0 0.1% Adjusted EBITDA $90.2 $81.8 10% Adjusted EBITDA margin 18.5% 16.8% 170bps Adjusted Operating Margin 13.0% 10.8% 220bps Adjusted Diluted EPS $1.56 $1.25 25% Capex $15.0 $33.6 (55%) Adjusted ROIC 8.3% 7.1% 120bps Cash Flow * $16.1 $39.5 $(23.4) • Cash Flow from operating activities; excludes convertible note tax payment totaling $19.6M (*) . 19
September YTD Organic Growth ($ in millions) YTD YTD % Organic Product Lines 2013 2012 Change Growth* Implantable Medical Cardiac/Neuromodulation $242,161 $235,406 3% 3% Orthopaedics 92,043 91,079 1% 15% Vascular 35,152 37,791 -7% -7% Total Implantable Medical 369,356 364,276 1% 5% Electrochem Portable Medical 60,376 59,346 2% 2% Energy 39,025 41,024 -5% -5% Other 18,569 22,345 -17% -17% Total Electrochem 117,970 122,715 -4% -4% Total Sales $487,326 $486,991 0.1% 2% * Net of divestiture of non-core products; $11.9M and favorable FX $1M 20
September YTD Variance Analysis Adj. EPS Comments YTD 2012 Adjusted EPS $ 1.25 Gross margin improvement $0.24; Swiss orthopaedic consolidations $0.24; medical Productivity 0.57 device initiatives $0.09 (0.21) Paid 62% targeted bonus in 2012 Performance based compensation Sales and marketing investments (0.06) R&D tax credit $0.05; interest expense $0.03; other $0.01; partially offset by share count Other 0.01 change ($0.08) $0.31 YTD 2013 Adjusted EPS $1.56 21
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