Greatbatch, Inc. Reports Second Quarter 2008 Results

2008-08-05 07:26:00

Greatbatch, Inc. Reports Second Quarter 2008 Results

– Achieved record sales of $141.6

million –

– 550 basis point sequential

improvement in adjusted operating margin –

– Adjusted EPS of $0.30 –

– Electrochem achieved organic

growth of 17% –

CLARENCE, N.Y.–(EMWNews)–Greatbatch, Inc. (NYSE: GB), a manufacturer of technology based products

for the commercial and implantable medical markets, today announced the

results of operations for the quarter ended June 27, 2008.

We are pleased to report this quarters

results. We grew revenues, met our integration expectations to begin

expanding operating margins, and are on track to further grow

profitability. More importantly, we are seeing early returns from our

strategy to diversify product lines and geographic mix through

acquisitions. We have built a platform to bring important new product

technologies to a broader, global customer base and are now methodically

working to leverage that platform for growth and profitability,

stated Tom Hook, President and Chief Executive Officer. We

are in the early stages of a two-year plan to recognize the synergies

from recent acquisitions. This quarter we grew operating margins through

sales growth as well as cost reduction initiatives. Going forward,

investors should expect to see both top line growth through the

introduction of new product technologies to current and new customers,

and bottom line growth as we diligently undertake further consolidation

and integration efforts.

Second Quarter Results

Consolidated sales in the second quarter were $141.6 million, an

increase of 81% over the prior year quarter and 16% sequentially. Our

acquisitions generated $64.2 million of revenue for the second quarter

of 2008.

Selling, general and administrative expenses as a percentage of sales

decreased by 50 basis points over the prior year quarter, despite nearly

$3.0 million of incremental legal expenses related to a lawsuit from the

former Enpath Medical.

Research, development and engineering costs for the second quarter were

$7.7 million, which as expected, were lower as a percentage of sales

versus the prior year. R&D costs also decreased as the Company

reorganized its R&D function in an effort to streamline operations.

Adjusted operating income grew $8.7 million over the sequential quarter

to $14.2 million, which is consistent with the year ago period. Adjusted

operating margins expanded 550 basis points to 10% for the second

quarter of 2008, up from 4.5% for the first quarter of 2008. Recent

improvements in both adjusted operating income and adjusted operating

margin were driven by operations streamlining efforts and increased

sales. Adjusted amounts exclude the costs incurred related to our

consolidation initiatives and integration of our newly acquired

businesses. (See Tables A & B for US GAAP reconciliations).

Adjusted earnings per diluted share were $0.30 in the current quarter up

from $0.16 in the first quarter, but below $0.42 in the second quarter

2007. Earnings per diluted share on a US GAAP basis were $0.25 per share

in the quarter compared to a loss of $0.15 per share in the second

quarter of 2007.

As a result of the acquired in-process research and development

write-off not being deductible for tax purposes and the expiration of

research and development tax credit, the effective tax rate for 2008 is

expected to be approximately 37%.

Tom Mazza, Senior Vice President and Chief Financial Officer, stated, Were

delivering improved operating performance as expected. Operating margin

grew from 4.5% to 10% as we executed quickly on short-term action steps

to improve sales and generate integration performance. We continue to

drive operating margin gains as we realize the benefits of synergies

resulting from integrating our acquisitions, and will realize these

results over the next several quarters on a non-linear basis. Our team

is highly focused on this task, and our track record and expertise gives

us confidence we will meet our guidance set at the beginning of the year.

Product Lines

The following table summarizes the Companys

sales by major product lines for the second quarters of 2008 and 2007

(in thousands):

 

2008

 

2007

 

%

Business Unit/Product Lines

2nd Qtr.

 

2nd Qtr.

 

Change

Implantable Medical Components (IMC):

CRM/Neuromodulation

$64,781

$66,007

-2%

Therapy Delivery

15,781

1,585

NA

Orthopedic

40,974

NA

Total Implantable Medical Components

121,536

67,592

80%

Electrochem

20,112

10,870

85%

Total Sales

$141,648

$78,462

81%

Implantable Medical Components

Second quarter sales for the IMC business segment grew 80% over the

prior year quarter to $121.5 million. IMC Results for the second quarter

of 2008 include revenue of $56.8 million from our recent acquisitions.

The Cardiac Rhythm Management (CRM) and Neuromodulation product line

decreased 2% compared to the second quarter of 2007 but increased 11%

from the first quarter of 2008. The second quarters

results benefited from increased adoption of our Q Series high rate ICD

batteries as well as higher feedthrough and assembly revenue. These

benefits were offset by lower demand for coated components, due to a

customer recall unrelated to Greatbatch products, and lower capacitor

sales. The second quarter of 2007 includes a higher level of capacitor

sales due to a customer supply issue in the first half of 2007.

Second quarter revenues for the Therapy Delivery product line were $15.8

million, compared to the prior quarter revenues of $16.5 million. This

decrease was primarily due to lower sales of introducers and leads.

The Orthopedic product line grew to $41.0 million in sales for the

quarter compared to $27.8 million in the first quarter of 2008. This

quarters results include the full impact of

the Chaumont manufacturing facility, which was acquired in February 2008.

Electrochem

Second quarter sales for the Electrochem business segment nearly doubled

to $20.1 million compared to $10.9 million for the prior year. The

increase in sales is a result of the acquisition of EAC in November 2007

($7.4 million) and increased demand from the oil and gas market.

Conference Call

The Company will host a conference call on Tuesday, August 5, 2008 at

2:30 p.m. E.T. to discuss these results. The scheduled conference call

will be webcast live and is accessible through the Companys

website at www.greatbatch.com.

An audio replay will also be available beginning from 4:30 p.m. E.T. on

August 5, 2008 until August 12, 2008. To access the replay, dial

888-286-8010 (U.S.) or 617-801-6888 (International) and enter the

passcode 79120007.

About Greatbatch, Inc.

Greatbatch, Inc. (NYSE: GB) is a leading developer and manufacturer of

critical products used in medical devices for the cardiac rhythm

management, neuromodulation, vascular, orthopedic and interventional

radiology markets. Additionally, Electrochem, a subsidiary of

Greatbatch, is a world leader in the design and manufacture of

technology solutions for some of the worlds

most demanding and extreme applications. Additional information about

the Company is available at www.greatbatch.com.

Forward-Looking Statements

Some of the statements in this press release and other written and oral

statements made from time to time by the Company and its representatives

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

statements can be identified by terminology such as may,

will, should,

could, expects,

intends, plans,

anticipates, believes,

estimates, predicts,

potential or continue,

or the negative of these terms or other comparable terminology. These

statements are based on the Companys current

expectations. The Companys 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: dependence upon a limited number of customers;

customer ordering patterns; product obsolescence; inability to market

current or future products; pricing pressure from customers; our ability

to timely and successfully implement our cost reduction and plant

consolidation initiatives; reliance on third party suppliers for raw

materials, products and subcomponents; fluctuating operating results;

inability to maintain high quality standards for our products;

challenges to our intellectual property rights; product liability

claims; inability to successfully consummate and integrate acquisitions

including the recent Precimed and DePuy Chaumont acquisitions and to

realize synergies and to operate these acquired businesses in accordance

with expectations; unsuccessful expansion into new markets including our

expansion into the orthopedics market resulting from the Precimed

acquisition; competition; 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; and other risks and uncertainties described in the

Companys 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 information 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.

Use of NON-GAAP Financial Information

In addition to our results reported in accordance with accounting

principals generally accepted in the United States of America (GAAP),

we provided adjusted operating income, adjusted net income and adjusted

earnings per diluted share. These adjusted amounts consist of GAAP

amounts excluding (i) acquisition-related charges, (ii) facility

consolidation, manufacturing transfer and system integration charges,

(iii) asset disposition and other charges and (iv) the income tax

(benefit) related to these adjustments. Adjusted earnings per diluted

share is calculated by dividing adjusted net income for diluted earnings

per share by diluted weighted average shares outstanding.

We believe that the presentation of adjusted operating income, adjusted

net income and adjusted earnings per diluted share provides important

supplemental information to management and investors regarding financial

and business trends relating to our financial condition and results of

operations.

Table A:  Operating Income Reconciliation (in thousands):

 

 

 

 

2008

2007

2008

2007

 

 

2nd Qtr.

 

2nd Qtr.

 

YTD

 

YTD

Operating income (loss) as reported:

$

11,352

$

(6,351

)

$

7,212

$

4,255

In-process research and development

18,353

2,240

18,353

Acquisition charges (inventory step-up)

 

 

 

204

 

 

6,422

 

 

204

 

Sub-total

 

11,352

 

 

12,206

 

 

15,874

 

 

22,812

 

Adjustments:

Consolidation costs

1,022

1,705

1,966

3,531

Integration expenses

1,914

2,068

Asset dispositions & other

 

(55

)

 

283

 

 

(125

)

 

(10

)

Operating income adjusted

$

14,233

 

$

14,194

 

$

19,783

 

$

26,333

 

Operating margin adjusted

 

10.0

%

 

18.1

%

 

7.5

%

 

17.0

%

Table B:  Net Income & EPS Reconciliation (in thousands):

 

 

 

 

2008

2007

2008

2007

 

 

2nd Qtr.

 

2nd Qtr.

 

YTD

 

YTD

Income (loss) before taxes as reported:

$

8,174

$

(1,955

)

$

2,456

$

13,852

In-process research and development

18,353

2,240

18,353

Acquisition charges (inventory step-up)

 

 

 

204

 

 

6,422

 

 

204

 

Sub-total

 

8,174

 

 

16,602

 

 

11,118

 

 

32,409

 

Adjustments:

Consolidation costs

1,022

1,705

1,966

3,531

Integration expenses

1,914

2,068

Asset dispositions & other

 

(55

)

 

283

 

 

(125

)

 

(10

)

Sub-total

 

11,055

 

 

18,590

 

 

15,027

 

 

35,930

 

Gain on sale of investment security

(4,001

)

(4,001

)

Gain on extinguishment of debt

 

 

 

 

 

 

 

(4,473

)

Adjusted income before taxes

$

11,055

$

14,589

$

15,027

$

27,456

Adjusted provision for income taxes

 

4,035

 

 

4,741

 

 

4,374

 

 

8,923

 

Adjusted net income

$

7,020

 

$

9,848

 

$

10,653

 

$

18,533

 

Adjusted diluted EPS

$

Greatbatch, Inc.
Marco Benedetti, 716-759-5856
Corporate

Controller

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