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 quarter’s
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, “We’re
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 Company’s
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 quarter’s
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
quarter’s 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 Company’s
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 world’s
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 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: 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
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 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 |
$ |
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