Greatbatch, Inc. (NYSE:GB) today announced results for its fourth
quarter and full-year ended January 1, 2016.
|
Three Months Ended |
|
Year End |
|
January 1, |
|
January 2, |
|
% |
|
January 1, |
|
January 2, |
|
% |
(Dollars
in thousands, except per share data) |
2016 |
|
2015 |
|
Change |
|
2016 |
|
2015 |
|
Change |
Sales |
$ |
317,567 |
|
|
$ |
169,726 |
|
|
87 |
% |
|
$ |
800,414 |
|
|
$ |
687,787 |
|
|
16 |
% |
Organic Constant
Currency Sales Growth |
7 |
% |
|
(5 |
)% |
|
|
|
|
(2 |
)% |
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Diluted EPS |
$ |
(0.85 |
) |
|
$ |
0.54 |
|
|
(257 |
)% |
|
$ |
(0.29 |
) |
|
$ |
2.14 |
|
|
(114 |
)% |
Adjusted Diluted
EPS* |
$ |
0.92 |
|
|
$ |
0.77 |
|
|
19 |
% |
|
$ |
2.90 |
|
|
$ |
2.86 |
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA* |
$ |
5,592 |
|
|
$ |
27,871 |
|
|
(80 |
)% |
|
$ |
62,445 |
|
|
$ |
118,028 |
|
|
(47 |
)% |
Adjusted EBITDA* |
$ |
69,005 |
|
|
$ |
36,295 |
|
|
90 |
% |
|
$ |
165,874 |
|
|
$ |
147,790 |
|
|
12 |
% |
Adjusted EBITDA as a %
Sales |
21.7 |
% |
|
21.4 |
% |
|
|
|
20.7 |
% |
|
21.5 |
% |
|
|
|
* Refer to Tables A and B at the end of this release for a
reconciliation of adjusted amounts to GAAP.
CEO CommentsThomas J. Hook,
president & CEO, commented, “The fourth quarter marked the
completion of two major strategic initiatives for the
Company. First, we received PMA approval from the FDA for our
Algovita SCS system. This is the first ever PMA device
developed at Greatbatch, demonstrating our extensive capabilities
in bringing critical medical device technology to the market
addressing the needs of patients worldwide. The FDA approval of the
Algovita device facilitates the pending spin-off of Nuvectra, which
is targeted for completion in March 2016. Second, we
completed the transformative acquisition of Lake Region Medical on
October 27. The deal significantly expands our capabilities in
the Cardiac, Vascular and Orthopaedic markets and also extends our
reach into the Advanced Surgical market with a portfolio of
minimally invasive devices used in laparoscopic and drug delivery
applications. Completing the Lake Region acquisition marked
the achievement of a key strategic milestone. The combination
of the two companies under the new Integer brand establishes the
Company as the premier global medical device outsource partner,
with the scale and breadth of capabilities to meet the demands of
our customers and the patients they serve. Our primary focus in
2016 will be to integrate our cultures and operations into one
single integrated entity. Thus far the merger of the organizations
has gone extremely well and I’m confident that we will be able to
leverage the combined expertise to accelerate our growth over the
long term.”
CFO CommentsMichael Dinkins,
executive vice president and CFO, commented, “In the fourth
quarter, excluding the impact of our acquisition of Lake Region
Medical and foreign currency fluctuations, we achieved 7% organic
constant currency growth for our legacy Greatbatch business. While
sales fell short of expectations, legacy Greatbatch sales of $179
million represented a record quarter for the Company. We saw a
sequential increase in all of our product lines with growth
continuing to be fueled by demand for our neurostimulation
devices. We successfully invested to increase our
manufacturing capacity at CCC Medical and ramped production
throughout the year to meet this accelerated neurostimulation
customer demand. For the fourth quarter, adjusted
earnings per diluted share of $0.92 increased by 19% compared to
last year, primarily resulting from the higher sales volume and
reduced compensation expenses. It is important to note that the
acquisition of Lake Region, which was completed on October 27,
2015, was dilutive to our reported adjusted fourth quarter earnings
per share by $0.08 due to the additional interest expense and
shares issued in connection with the acquisition. Excluding Lake
Region, adjusted earnings per share would have been $1.00 for the
quarter, representing an increase of 30% compared to last
year.”
Dinkins continued “For the year, Neuromodulation
growth was offset by the downturn in the Energy market, coupled
with inventory and market adjustments, primarily in our Cardiac
market. With the addition of $800 million in diversified Lake
Region revenues, we will be in a better position to extend our
market reach and add critical medical device capabilities that our
customers require. Despite the headwinds that we faced in
2015, we were able to organically grow our adjusted diluted
earnings per share by 3% over 2014, which demonstrates our ability
to control costs and improve efficiencies. We will continue
this focus and leverage the strengths of the new Integer
organization to drive long-term growth and profitability.”
Dinkins concluded, “Looking ahead to 2016, we
are actively working on the integration of the two companies. The
integration is going extremely well and we are on track to achieve
the targeted first year synergies of $25 million. In
addition, we are in the process of conducting top-to-top meetings
with our major customers and are very encouraged by the
opportunities to deepen our partnerships. Lastly, we are finalizing
the sales organization structure and plans for the upcoming year
and expect these plans to be concluded in the next few weeks.”
Fourth Quarter and Full Year
ResultsDuring the fourth quarter of 2015, we completed our
acquisition of Lake Region Medical Holdings, Inc. (“Lake Region
Medical”) for a total purchase price, including debt assumed, of
approximately $1.77 billion. Lake Region Medical offers fully
integrated outsourced manufacturing and engineering services,
contract manufacturing, finished device assembly, original device
development and supply chain management services from concept to
point-of-care in the cardio & vascular and advanced surgical
markets. After completing the acquisition, Greatbatch is one of the
largest medical device outsource manufacturers in the world. In
connection with our acquisition of Lake Region Medical, we have
recast our revenue by product line disclosures into the following
four categories: Advanced Surgical, Orthopaedics, and Portable
Medical; Cardio and Vascular; Cardiac/Neuromodulation; and
Electrochem. Prior period amounts have been recast to be presented
on a comparable basis. The combined company of Greatbatch and Lake
Region Medical is expected to be renamed Integer Holdings
Corporation later this year following shareholder approval.
Fourth quarter 2015 sales increased 87% in
comparison to the prior year period. Fourth quarter 2015 revenue
includes two months of operations from our acquisition of Lake
Region Medical, which added $138.6 million to sales. Additionally,
sales for the quarter continued to be impacted by foreign currency
exchange rate fluctuations, which reduced sales by approximately
$2.5 million ($14.5 million for full year 2015) in comparison to
the prior year. Excluding the impact of our acquisition of Lake
Region Medical and foreign currency exchange rates, fourth quarter
2015 sales increased 7% over the prior year primarily due to
increased Cardiac/Neuromodulation (26% organic constant currency
growth), and Cardio and Vascular (10% organic constant currency
growth) revenue growth. The increase in Cardiac/Neuromodulation
sales was primarily driven by a neuromodulation customer product
launch, while the increase in Cardio and Vascular revenue was
primarily due to customers building safety stock in anticipation of
our product line transfers to our Tijuana, Mexico facility in the
first quarter of 2016. These increases were partially offset by a
43% decline in Electrochem sales due to a slowdown in the energy
markets, which has caused customers to reduce drilling and
exploration volumes. For fiscal year 2015, sales declined 2% on an
organic constant currency basis in comparison to 2014 as the
benefit of the neuromodulation customer product launch was offset
by the runoff of end of life products from our legacy cardiac
customers, as well as a 27% decline in Electrochem sales due to the
slowdown in the energy markets.
Gross profit for the fourth quarter of 2015
increased 28% in comparison to the prior year period. This increase
was primarily due to the increase in sales as discussed above, as
well as lower performance-based compensation. Our gross profit as a
percentage of sales for the fourth quarter of 2015 was 23.0%
compared to 33.7% for the fourth quarter of 2014. Excluding the
impact of the Lake Region Medical acquisition, which included $23.0
million of inventory step-up amortization, our gross profit as a
percentage of sales for the fourth quarter of 2015 would have been
approximately 37.1%. For fiscal year 2015, gross profit increased
2% due to the Lake Region Medical acquisition. For fiscal year
2015, our gross profit as a percentage of sales was 29.4%.
Excluding the impact of the Lake Region Medical acquisition and
inventory step-up amortization, our gross profit as a percentage of
sales for fiscal year 2015 would have been approximately 34.5%,
primarily due to a lower level of performance-based compensation
and on-going continuous improvement projects.
Selling, general and administrative (“SG&A”)
expenses for the fourth quarter of 2015 increased $8.7 million or
35% in comparison to the same period of 2014. Excluding the impact
of the Lake Region Medical acquisition, which added $12.6 million
to SG&A expenses, SG&A decreased $3.9 million. This
decrease was primarily due to lower performance-based compensation
($2.1 million), as well as cost savings from our various
consolidation initiatives. For fiscal year 2015, SG&A expenses
increased $11.9 million primarily due to our acquisition of Lake
Region Medical, the full year impact of CCC Medical Devices ($2.2
million), which was acquired in August 2014, as well as
higher legal fees in connection with intellectual property (“IP”)
related litigation ($1.9 million). These increases were partially
offset by lower performance-based compensation ($4.1 million) as
well as cost savings from our various consolidation
initiatives.
Net research, development and engineering
(“RD&E”) costs for the fourth quarter of 2015 increased $3.2
million or 32% in comparison to the same period of 2014. Excluding
the impact of the Lake Region Medical acquisition, which added $1.8
million to RD&E expenses, RD&E increased $1.4 million. This
increase was primarily attributable to a decrease in customer cost
reimbursements of $1.2 million. For fiscal year 2015, RD&E
expenses increased $3.2 million primarily due to our acquisition of
Lake Region Medical and lower customer cost reimbursements of $2.4
million. These increases were partially offset by lower
performance-based compensation of $2.5 million.
Other operating expenses, net (“OOE”) for the
fourth quarter of 2015 increased $31.9 million in comparison to the
same period of 2014. This increase was primarily due to costs
incurred in connection with our acquisition of Lake Region Medical
($28.0 million), which included change in control payments,
investment banking fees and other professional and consulting fees.
This increase can also be attributed to costs incurred in
connection with our pending spin-off of Nuvectra ($1.4 million), as
well as an increase in consolidation costs incurred by both
Greatbatch and Lake Region Medical ($3.0 million). For fiscal year
2015, OOE expenses increased $51.1 million primarily due to costs
incurred in connection with our acquisition of Lake Region Medical
($33.1 million), our pending spin-off of Nuvectra ($6.0 million)
and increased consolidation costs ($14.1 million) in connection
with the transfer of our portable medical and vascular product
lines to Tijuana, Mexico.
Interest expense for the fourth quarter and full
year of 2015 increased $24.3 million and $29.3 million,
respectively, in comparison to the same periods of 2014. These
increases were due to higher debt levels in connection with the
Lake Region Medical acquisition as well as transaction costs (i.e.
debt commitment fees, interest rate swap termination costs, debt
extinguishment charges) incurred in connection with our acquisition
of Lake Region Medical of $4.7 million for the fourth quarter of
2015 and $9.5 million for full year 2015.
The effective tax rate for fiscal year 2015 was
51.6% compared to 27.6% for fiscal year 2014. On an adjusted basis,
our effective tax rate was 22.1% for 2015 compared to 28.8% for
2014. The 2015 and 2014 GAAP and adjusted effective tax rates
include the benefit of the Federal research and development tax
credit (“R&D Tax Credit”), which was reinstated in the fourth
quarter of 2015 and fourth quarter of 2014 for each respective
year. As required, the R&D Tax Credit is recognized in the
quarter the legislation is enacted. In addition to the above, the
2015 GAAP and adjusted effective tax rates benefited from higher
income in lower tax jurisdictions, which was partially offset by
nondeductible transaction costs in connection with the acquisition
of Lake Region Medical and the pending spin-off of Nuvectra. These
nondeductible transaction costs are not tax-effected for purposes
of calculating adjusted diluted EPS amounts. Refer to Table A at
the end of this release for a reconciliation of GAAP net income
(loss) to adjusted amounts and the “Use of Non-GAAP Financial
Information” section below.
GAAP and adjusted diluted EPS for the fourth
quarter of 2015 were a loss of $0.85 and earnings of $0.92,
respectively, compared to earnings of $0.54 and $0.77,
respectively, for the fourth quarter of 2014. For fiscal year 2015,
GAAP and adjusted diluted EPS were a loss of $0.29 and earnings of
$2.90, respectively, compared to earnings of $2.14 and $2.86,
respectively, for fiscal year 2014. The Company estimates that the
Lake Region Medical acquisition was approximately 2% dilutive to
2015 adjusted diluted EPS, and that excluding this impact, adjusted
diluted EPS would have increased approximately 3% in comparison to
2014. Refer to Table A at the end of this release for a
reconciliation of GAAP net income (loss) and diluted EPS to
adjusted amounts and the “Use of Non-GAAP Financial Information”
section below.
Cash flows provided by operating activities for
2015 was $12 million compared to $81 million for 2014. This
decrease was primarily due to the significant increase in
consolidation and acquisition related costs. Similar to cash flow
from operations, our earnings before interest, taxes, depreciation
and amortization (“EBITDA”) decreased to $62.4 million in 2015
compared to $118.0 million in 2014. However, on an adjusted basis,
which excludes, among others, these consolidation and acquisition
related costs, our adjusted EBITDA increased 12% to $165.9 million.
Refer to Table B at the end of this release for a reconciliation of
GAAP net income (loss) to adjusted EBITDA amounts and the “Use of
Non-GAAP Financial Information” section below.
Product Line SalesThe following
table summarizes the Company’s sales by major product lines
(dollars in thousands):
|
Three Months Ended |
|
January 1,2016 |
|
January 2, 2015 |
|
|
Product
Line |
Legacy Greatbatch |
|
Lake Region |
|
Total |
|
Total |
|
%Change |
Advanced Surgical,
Orthopaedics, and Portable Medical |
$ |
54,729 |
|
|
$ |
37,861 |
|
|
$ |
92,590 |
|
|
$ |
56,415 |
|
|
64 |
% |
Cardio and
Vascular |
17,094 |
|
|
88,796 |
|
|
105,890 |
|
|
15,560 |
|
|
581 |
% |
Cardiac/Neuromodulation |
93,888 |
|
|
13,726 |
|
|
107,614 |
|
|
74,493 |
|
|
44 |
% |
Electrochem |
13,217 |
|
|
— |
|
|
13,217 |
|
|
23,258 |
|
|
(43 |
)% |
Elimination of
Interproduct Line Sales |
— |
|
|
(1,744 |
) |
|
(1,744 |
) |
|
— |
|
|
NA |
|
Total Sales |
$ |
178,928 |
|
|
$ |
138,639 |
|
|
$ |
317,567 |
|
|
$ |
169,726 |
|
|
87 |
% |
|
|
|
|
|
|
|
|
|
|
Organic Constant
Currency Sales Increase (Decrease) |
|
|
|
|
7 |
% |
|
(5 |
)% |
|
|
Advanced Surgical,
Orthopaedics, and Portable MedicalOrganic Constant Currency Sales
Increase |
|
|
|
|
1 |
% |
|
10 |
% |
|
|
|
Year Ended |
|
January 1,2016 |
|
January 2, 2015 |
|
|
Product
Line |
Legacy Greatbatch |
|
Lake Region |
|
Total |
|
Total |
|
%Change |
Advanced Surgical,
Orthopaedics, and Portable Medical |
$ |
205,524 |
|
|
$ |
37,861 |
|
|
$ |
243,385 |
|
|
$ |
216,339 |
|
|
13 |
% |
Cardio and
Vascular |
54,464 |
|
|
88,796 |
|
|
143,260 |
|
|
58,770 |
|
|
144 |
% |
Cardiac/Neuromodulation |
342,338 |
|
|
13,726 |
|
|
356,064 |
|
|
330,921 |
|
|
8 |
% |
Electrochem |
59,449 |
|
|
— |
|
|
59,449 |
|
|
81,757 |
|
|
(27 |
)% |
Elimination of
Interproduct Line Sales |
— |
|
|
(1,744 |
) |
|
(1,744 |
) |
|
— |
|
|
NA |
|
Total Sales |
$ |
661,775 |
|
|
$ |
138,639 |
|
|
$ |
800,414 |
|
|
$ |
687,787 |
|
|
16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Organic Constant
Currency Sales Increase (Decrease) |
|
|
|
|
(2 |
)% |
|
3 |
% |
|
|
Advanced Surgical,
Orthopaedics, and Portable MedicalOrganic Constant Currency Sales
Increase |
|
|
|
|
2 |
% |
|
12 |
% |
|
|
In connection with our acquisition of Lake
Region Medical, we have recast our revenue by product line into the
following four categories:
- Advanced Surgical, Orthopaedics, and Portable Medical -
Includes legacy Greatbatch Orthopaedics and Portable Medical
product line sales plus the legacy Lake Region Medical Advanced
Surgical product line sales.
- Cardio and Vascular - Includes the legacy Greatbatch Vascular
product line sales plus the legacy Lake Region Medical Cardio and
Vascular product line sales less the legacy Lake Region Medical
Cardiac/Neuromodulation sales.
- Cardiac/Neuromodulation - Includes the legacy Greatbatch
Cardiac/Neuromodulation and QiG sales plus the legacy Lake Region
Medical Cardiac/Neuromodulation sales previously included in their
Cardio and Vascular product line sales.
- Electrochem - Includes the legacy Greatbatch Energy, Military
and Environmental product line sales.
Product Line Sales
HighlightsFourth quarter 2015 Advanced Surgical,
Orthopaedics, and Portable Medical sales increased $36.2 million in
comparison to the prior year period and includes $37.9 million of
sales from the former Lake Region Medical since the date of
acquisition. Additionally, during the quarter this product line
continued to be impacted by the weakening Euro, which reduced sales
by approximately $2.5 million ($14.5 million for full year 2015) in
comparison to the prior year. On an organic constant currency
basis, our Advanced Surgical, Orthopaedics, and Portable Medical
product line fourth quarter sales increased 1% in comparison to the
prior year. For fiscal year 2015, Advanced Surgical,
Orthopaedics, and Portable Medical sales increased 2% on an organic
constant currency basis in comparison to 2014 primarily due to
market growth.
Fourth quarter 2015 Cardio and Vascular sales
increased $90.3 million in comparison to the prior year period and
includes $88.8 million of sales from the former Lake Region Medical
since the date of acquisition. On an organic constant currency
basis, our Cardio and Vascular sales increased 10% during the
quarter as customers built safety stock in anticipation of our
product line transfers to our Tijuana, Mexico facility scheduled to
occur during the first half of 2016. For fiscal year 2015, Cardio
and Vascular sales decreased 7% on an organic constant currency
basis in comparison to 2014 due to the end of life on some legacy
products.
Fourth quarter 2015 Cardiac/Neuromodulation
sales increased $33.1 million in comparison to the prior year
period and includes $13.7 million of sales from the former Lake
Region Medical since the date of acquisition. On an organic
constant currency basis, our Cardiac/Neuromodulation sales
increased 26% during the quarter primarily due to a neuromodulation
customer product launch, which is expected to normalize beginning
in the first quarter of 2016. For fiscal year 2015,
Cardiac/Neuromodulation sales increased 2% on an organic constant
currency basis in comparison to 2014 as the benefit of the
neuromodulation customer product launch was partially offset by the
runoff of end of life products from our legacy cardiac
customers.
Fourth quarter and full year 2015 Electrochem
sales declined 43% and 27%, respectively. This decrease was
primarily due to the slowdown in the energy markets, which has
caused customers to reduce drilling and exploration volumes. We
currently expect the slowdown in the energy markets to continue to
be a headwind to Electrochem sales throughout 2016.
Conference CallThe Company will
host a conference call on Monday, February 29, 2016 at 5:00 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 or by dialing 866-562-8327 and the
participant passcode is 32338707. An audio replay will also be
available beginning from 8:00 p.m. E.T. on February 29, 2016 until
March 7, 2016. To access the replay, dial 855-859-2056 and enter
the passcode 32338707.
About Greatbatch, Inc.Greatbatch, Inc.
(NYSE:GB) is one of the largest medical device outsource
manufacturers in the world serving the cardiac, neuromodulation,
orthopaedics, vascular, advanced surgical and portable medical
markets. The Company provides innovative, high quality medical
technologies that enhance the lives of patients worldwide. In
addition, it develops batteries for high-end niche applications in
energy, military, and environmental markets. The Company’s brands
include Greatbatch Medical, Lake Region Medical and Electrochem.
Additional information is available at www.greatbatch.com.
Use of Non-GAAP Financial
InformationIn addition to our results reported in
accordance with generally accepted accounting principles (“GAAP”),
we provide adjusted net income, adjusted earnings per diluted
share, EBITDA, adjusted EBITDA and organic constant currency sales
growth rates. Adjusted net income and adjusted earnings per diluted
share consist of GAAP amounts adjusted for the following to the
extent occurring during the period: (i) acquisition-related
charges, (ii) amortization of intangible assets (iii) facility
consolidation, optimization, manufacturing transfer and system
integration charges, (iv) asset write-down and disposition charges,
(v) charges in connection with corporate realignments or a
reduction in force, (vi) certain litigation expenses, charges and
gains, (vii) unusual or infrequently occurring items, (viii)
gain/loss on cost and equity method investments, (ix) the income
tax (benefit) related to these adjustments and (x) certain tax
items related to the Federal research and development tax credit
which are outside the normal benefit received for the period.
Adjusted earnings per diluted share are calculated by dividing
adjusted net income by diluted weighted average shares outstanding.
Adjusted EBITDA consists of GAAP net income plus (i) the same
adjustments as listed above except for items (ix), and (x), (ii)
GAAP stock-based compensation, interest expense, and depreciation,
(iii) GAAP provision (benefit) for income taxes and (iv) cash gains
received from cost and equity method investments. To calculate
organic constant currency sales growth rates, which exclude the
impact of changes in foreign currency exchange rates, as well as
the impact of any acquisitions or divestitures of product lines on
sales growth rates, we convert current period sales from local
currency to U.S. dollars using the previous periods’ foreign
currency exchange rates and exclude the amount of sales
acquired/divested during the period from the current/previous
period amounts, respectively. We believe that the presentation of
adjusted net income, adjusted diluted earnings per share, EBITDA,
adjusted EBITDA and organic constant currency sales growth rates
provides important supplemental information to management and
investors seeking to understand the financial and business trends
relating to our financial condition and results of operations.
Forward-Looking StatementsSome
of the statements contained in this press release and other written
and oral statements made from time to time by us and our
representatives are not statements of historical or current fact.
As such, they 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. We have based these forward-looking statements on our
current expectations, and these statements are subject to known and
unknown risks, uncertainties and assumptions. Forward-looking
statements include statements relating to:
- future sales, expenses and profitability;
- future development and expected growth of our business and
industry;
- our ability to execute our business model and our business
strategy;
- our ability to identify trends within our industries and to
offer products and services that meet the changing needs of those
markets; and
- projected capital expenditures.
You can identify forward-looking statements 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 only predictions. Actual events or results may
differ materially from those stated or implied by these
forward-looking statements. In evaluating these statements and our
prospects, you should carefully consider the factors set forth
below. All forward-looking statements attributable to us or persons
acting on our behalf are expressly qualified in their entirety by
these cautionary factors and to others contained throughout this
report. We are under no duty to update any of the forward-looking
statements after the date of this release or to conform these
statements to actual results.
Although it is not possible to create a
comprehensive list of all factors that may cause actual results to
differ from the results expressed or implied by our forward-looking
statements or that may affect our future results, some of these
factors include the following: our high level of indebtedness
following the acquisition of Lake Region Medical, our inability to
pay principal and interest on this high level of outstanding
indebtedness, and the risk that this high level of indebtedness
limits our ability to invest in our business and overall financial
flexibility; our dependence upon a limited number of customers;
customer ordering patterns; product obsolescence; our inability to
market current or future products; pricing pressure from customers;
our ability to timely and successfully implement cost reduction and
plant consolidation initiatives; our reliance on third party
suppliers for raw materials, products and subcomponents;
fluctuating operating results; our inability to maintain high
quality standards for our products; challenges to our intellectual
property rights; product liability claims; product field actions or
recalls; our inability to successfully consummate and integrate
acquisitions, including the acquisition of Lake Region Medical, and
to realize synergies and benefits from these acquisitions and to
operate these acquired businesses in accordance with expectations;
our unsuccessful expansion into new markets; our failure to develop
new products including system and device products; the timing,
progress and ultimate success of pending regulatory actions and
approvals, including with respect to Algovita; risks associated
with the pending spin-off of Nuvectra including our ability to
execute the spin-off successfully, the timing and taxable nature of
the spin-off, and the performance of Nuvectra post spin-off; our
inability to obtain licenses to key technology; regulatory changes,
including Health Care Reform, or consolidation in the healthcare
industry; global economic factors including currency exchange rates
and interest rates; the resolution of various legal actions brought
against the Company; and other risks and uncertainties that arise
from time to time and are described in Item 1A “Risk Factors”
of 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 statements 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.
Table A: Net Income (Loss) and Diluted EPS
Reconciliation
|
Three Months Ended |
|
Year Ended |
|
January 1, 2016 |
|
January 2, 2015 |
|
January 1, 2016 |
|
January 2, 2015 |
(in thousands
except per share amounts) |
NetIncome (Loss) |
|
PerDilutedShare |
|
NetIncome |
|
PerDilutedShare |
|
NetIncome (Loss) |
|
PerDilutedShare |
|
NetIncome |
|
PerDilutedShare |
Net income (loss) as
reported |
$ |
(24,907 |
) |
|
$ |
(0.85 |
) |
|
$ |
14,176 |
|
|
$ |
0.54 |
|
|
$ |
(7,594 |
) |
|
$ |
(0.29 |
) |
|
$ |
55,458 |
|
|
$ |
2.14 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of
intangibles(a)(c) |
5,277 |
|
|
0.18 |
|
|
2,432 |
|
|
0.09 |
|
|
12,273 |
|
|
0.45 |
|
|
9,637 |
|
|
0.37 |
|
Inventory step-up amortization
(COS)(c) |
15,605 |
|
|
0.52 |
|
|
138 |
|
|
0.01 |
|
|
15,605 |
|
|
0.57 |
|
|
195 |
|
|
0.01 |
|
IP related litigation
(SG&A)(b)(c) |
735 |
|
|
0.02 |
|
|
628 |
|
|
0.02 |
|
|
2,871 |
|
|
0.11 |
|
|
1,626 |
|
|
0.06 |
|
Consolidation and optimization
expenses (OOE)(c)(d) |
5,736 |
|
|
0.19 |
|
|
2,804 |
|
|
0.11 |
|
|
21,158 |
|
|
0.77 |
|
|
6,567 |
|
|
0.25 |
|
Acquisition and integration
expenses (OOE)(c)(e) |
20,924 |
|
|
0.69 |
|
|
222 |
|
|
0.01 |
|
|
25,885 |
|
|
0.95 |
|
|
61 |
|
|
— |
|
Asset dispositions, severance and
other (OOE)(c)(f) |
1,499 |
|
|
0.05 |
|
|
1,187 |
|
|
0.05 |
|
|
5,099 |
|
|
0.19 |
|
|
3,463 |
|
|
0.13 |
|
Lake Region Medical transaction
costs (interest expense)(c)(g) |
3,039 |
|
|
0.10 |
|
|
— |
|
|
— |
|
|
6,151 |
|
|
0.23 |
|
|
— |
|
|
— |
|
(Gain) loss on cost and equity
method investments, net (other income, net)(c)(h) |
1,150 |
|
|
0.04 |
|
|
(290 |
) |
|
(0.01 |
) |
|
(2,177 |
) |
|
(0.08 |
) |
|
(2,841 |
) |
|
(0.11 |
) |
R&D Tax Credit(i) |
(1,200 |
) |
|
(0.04 |
) |
|
(1,200 |
) |
|
(0.05 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Adjusted net income and diluted
EPS(j) |
$ |
27,858 |
|
|
$ |
0.92 |
|
|
$ |
20,097 |
|
|
$ |
0.77 |
|
|
$ |
79,271 |
|
|
$ |
2.90 |
|
|
$ |
74,166 |
|
|
$ |
2.86 |
|
Adjusted diluted weighted average
shares(k) |
30,125 |
|
|
|
|
26,071 |
|
|
|
|
27,304 |
|
|
|
|
25,975 |
|
|
|
(a) Given our acquisition of Lake Region Medical
in the fourth quarter of 2015 and in order to present our financial
results in a form more comparable to other medical device companies
and less acquisitive companies, during the third quarter of 2015,
we began excluding intangible asset amortization for purposes of
calculating adjusted net income and adjusted diluted EPS. Prior
period adjusted amounts have been recalculated to exclude
intangible amortization for all periods presented.(b) In 2013, we
filed suit against AVX Corporation alleging they were infringing on
our intellectual property. Given the complexity and significant
costs incurred pursuing this litigation, during the second quarter
of 2015, we began excluding these litigation expenses from adjusted
amounts. Total costs incurred in connection with this litigation in
2015 was $4.4 million pre-tax. This matter proceeded to trial
during the first quarter of 2016 and a federal jury awarded
Greatbatch $37.5 million in damages. Prior period adjusted amounts
have been recalculated to exclude these costs for all periods
presented.(c) Net of tax amounts computed using a 35% U.S., Mexico,
and France statutory tax rate, a 25% Uruguay statutory tax rate,
and a 12.5% Ireland statutory tax rate. Expenses that are not
deductible for tax purposes (i.e. permanent tax differences) are
added back at 100%.(d) During 2015 and 2014, we incurred costs
primarily related to the transfer of our Beaverton, OR portable
medical and Plymouth, MN vascular manufacturing operations to
Tijuana, Mexico. Additionally, with the acquisition of Lake Region
Medical, these costs now include expenses incurred in connection
with the closure of Lake Region Medical’s Arvada, Colorado site and
the consolidation of its two Galway, Ireland sites initiated by
Lake Region Medical in 2014.(e) During 2015, we incurred costs
related to the acquisition of Lake Region Medical ($28.0 million
pre-tax during the fourth quarter of 2015 and $33.1 million pre-tax
for fiscal year 2015) and the integration of CCC Medical Devices.
During 2014, we incurred costs related to the integration of CCC
Medical Devices.(f) 2015 costs primarily include legal and
professional fees incurred in connection with the pending spin-off
of Nuvectra ($1.4 million pre-tax during the fourth quarter of 2015
and $6.0 million pre-tax for fiscal year 2015). 2014 costs
primarily include costs in connection with our business
reorganization to realign our contract manufacturing operations.(g)
We recorded $4.7 million pre-tax and $9.5 million pre-tax for the
2015 fourth quarter and full-year periods, respectively, in
transaction costs (i.e. debt commitment fees, interest rate swap
termination costs, debt extinguishment charges) in connection with
our acquisition of Lake Region Medical.(h) Pre-tax amount is a loss
of $1.8 million and a gain of $3.4 million for the 2015 fourth
quarter and full-year periods, respectively, and a gain of $445
thousand and $4.4 million for the 2014 fourth quarter and full-year
periods, respectively.(i) The 2015 Federal R&D tax credit was
enacted during the fourth quarter of 2015 and the 2014 Federal
R&D tax credit was enacted in the fourth quarter of 2014.
Amounts assume that the tax credit was effective at the beginning
of the year for 2015 and 2014. (j) The per share data in this table
have been rounded to the nearest $0.01 and therefore may not sum to
the total.(k) Fourth quarter and full year 2015 adjusted diluted
weighted average shares include 947,000 and 941,000 shares of
dilution, respectively, related to outstanding equity awards that
were not dilutive for GAAP EPS purposes.
Table B: EBITDA and Adjusted EBITDA
Reconciliation
|
Three Months Ended |
|
Year Ended |
|
January 1, |
|
January 2, |
|
January 1, |
|
January 2, |
(dollars in
thousands) |
2016 |
|
2015 |
|
2016 |
|
2015 |
Net income (loss) as
reported |
$ |
(24,907 |
) |
|
$ |
14,176 |
|
|
$ |
(7,594 |
) |
|
$ |
55,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
25,362 |
|
|
1,044 |
|
|
33,513 |
|
|
4,252 |
|
Provision (benefit) for
income taxes |
(12,554 |
) |
|
3,310 |
|
|
(8,106 |
) |
|
21,121 |
|
Depreciation |
10,203 |
|
|
5,915 |
|
|
27,136 |
|
|
23,320 |
|
Amortization |
7,488 |
|
|
3,426 |
|
|
17,496 |
|
|
13,877 |
|
EBITDA |
5,592 |
|
|
27,871 |
|
|
62,445 |
|
|
118,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory step-up
amortization |
22,986 |
|
|
173 |
|
|
22,986 |
|
|
260 |
|
IP related
litigation |
1,131 |
|
|
967 |
|
|
4,417 |
|
|
2,502 |
|
Stock-based
compensation |
288 |
|
|
2,655 |
|
|
9,287 |
|
|
12,893 |
|
Consolidation and
optimization expenses |
7,191 |
|
|
4,218 |
|
|
26,393 |
|
|
11,188 |
|
Acquisition and
integration expenses |
28,083 |
|
|
251 |
|
|
33,449 |
|
|
3 |
|
Asset dispositions,
severance and other |
1,741 |
|
|
605 |
|
|
6,622 |
|
|
4,106 |
|
Noncash (gain) loss on
cost and equity method investments |
1,993 |
|
|
(445 |
) |
|
275 |
|
|
(1,190 |
) |
Adjusted EBITDA |
$ |
69,005 |
|
|
$ |
36,295 |
|
|
$ |
165,874 |
|
|
$ |
147,790 |
|
Adjusted EBITDA as a % of
sales |
21.7 |
% |
|
21.4 |
% |
|
20.7 |
% |
|
21.5 |
% |
During the year, we changed our calculation and
presentation of Adjusted EBITDA in order to present our financial
results in a form more consistent with other medical device
companies, as well as our debt covenant calculations. The primary
difference between the current and former calculation is that
stock-based compensation is now added back to GAAP net income
(loss) to derive Adjusted EBITDA. Prior period adjusted amounts
have been recalculated to be presented on a comparable basis.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS - Unaudited |
(in thousands except per share
data) |
|
|
|
|
|
Three Months Ended |
|
Year Ended |
|
January 1, |
|
January 2, |
|
January 1, |
|
January 2, |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
Sales |
$ |
317,567 |
|
|
$ |
169,726 |
|
|
$ |
800,414 |
|
|
$ |
687,787 |
|
Cost of sales |
244,427 |
|
|
112,512 |
|
|
565,279 |
|
|
456,389 |
|
Gross profit |
73,140 |
|
|
57,214 |
|
|
235,135 |
|
|
231,398 |
|
Operating
expenses: |
|
|
|
|
|
|
|
Selling, general and administrative
expenses |
33,509 |
|
|
24,849 |
|
|
102,530 |
|
|
90,602 |
|
Research, development and
engineering costs, net |
13,088 |
|
|
9,883 |
|
|
52,995 |
|
|
49,845 |
|
Other operating expenses, net |
37,015 |
|
|
5,074 |
|
|
66,464 |
|
|
15,297 |
|
Total operating expenses |
83,612 |
|
|
39,806 |
|
|
221,989 |
|
|
155,744 |
|
Operating income (loss) |
(10,472 |
) |
|
17,408 |
|
|
13,146 |
|
|
75,654 |
|
Interest expense |
25,362 |
|
|
1,044 |
|
|
33,513 |
|
|
4,252 |
|
(Gain) loss on cost and
equity method investments, net |
1,769 |
|
|
(445 |
) |
|
(3,350 |
) |
|
(4,370 |
) |
Other income, net |
(142 |
) |
|
(677 |
) |
|
(1,317 |
) |
|
(807 |
) |
Income (loss) before
provision (benefit) for income taxes |
(37,461 |
) |
|
17,486 |
|
|
(15,700 |
) |
|
76,579 |
|
Provision (benefit) for
income taxes |
(12,554 |
) |
|
3,310 |
|
|
(8,106 |
) |
|
21,121 |
|
Net income (loss) |
$ |
(24,907 |
) |
|
$ |
14,176 |
|
|
$ |
(7,594 |
) |
|
$ |
55,458 |
|
|
|
|
|
|
|
|
|
Earnings (loss) per
share: |
|
|
|
|
|
|
|
Basic |
$ |
(0.85 |
) |
|
$ |
0.57 |
|
|
$ |
(0.29 |
) |
|
$ |
2.23 |
|
Diluted |
$ |
(0.85 |
) |
|
$ |
0.54 |
|
|
$ |
(0.29 |
) |
|
$ |
2.14 |
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding: |
|
|
|
|
|
|
|
Basic |
29,178 |
|
|
24,948 |
|
|
26,363 |
|
|
24,825 |
|
Diluted |
29,178 |
|
|
26,071 |
|
|
26,363 |
|
|
25,975 |
|
CONDENSED CONSOLIDATED BALANCE SHEETS -
Unaudited |
(in thousands) |
|
|
|
As of |
|
January 1, |
|
January 2, |
ASSETS |
2016 |
|
2015 |
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
82,478 |
|
|
$ |
76,824 |
|
Accounts receivable, net |
207,342 |
|
|
124,953 |
|
Inventories |
252,166 |
|
|
129,242 |
|
Refundable income taxes |
11,730 |
|
|
1,716 |
|
Deferred income taxes |
— |
|
|
6,168 |
|
Prepaid expenses and other current
assets |
20,888 |
|
|
11,780 |
|
Total current assets |
574,604 |
|
|
350,683 |
|
Property, plant and
equipment, net |
379,492 |
|
|
144,925 |
|
Amortizing intangible
assets, net |
893,977 |
|
|
65,337 |
|
Indefinite-lived
intangible assets |
90,288 |
|
|
20,288 |
|
Goodwill |
1,013,570 |
|
|
354,393 |
|
Deferred income
taxes |
3,587 |
|
|
2,626 |
|
Other assets |
26,618 |
|
|
16,870 |
|
Total assets |
$ |
2,982,136 |
|
|
$ |
955,122 |
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY |
|
|
|
Current
liabilities: |
|
|
|
Current portion of long-term
debt |
$ |
29,000 |
|
|
$ |
11,250 |
|
Accounts payable |
84,362 |
|
|
46,436 |
|
Income taxes payable |
3,221 |
|
|
2,003 |
|
Deferred income taxes |
— |
|
|
588 |
|
Accrued expenses |
97,257 |
|
|
48,384 |
|
Total current liabilities |
213,840 |
|
|
108,661 |
|
Long-term debt |
1,685,053 |
|
|
175,363 |
|
Deferred income
taxes |
221,804 |
|
|
53,195 |
|
Other long-term
liabilities |
10,814 |
|
|
4,541 |
|
Total liabilities |
2,131,511 |
|
|
341,760 |
|
Stockholders’
equity: |
|
|
|
Preferred stock |
— |
|
|
— |
|
Common stock |
31 |
|
|
25 |
|
Additional paid-in capital |
620,470 |
|
|
366,073 |
|
Treasury stock |
(3,100 |
) |
|
(1,307 |
) |
Retained earnings |
231,854 |
|
|
239,448 |
|
Accumulated other comprehensive
income |
1,370 |
|
|
9,123 |
|
Total stockholders’ equity |
850,625 |
|
|
613,362 |
|
Total liabilities and stockholders’
equity |
$ |
2,982,136 |
|
|
$ |
955,122 |
|
In the fourth quarter of 2015, we adopted
Accounting Standards Update (“ASU”) No. 2015-03,
“Interest-Imputation of Interest (Subtopic 835-30): Simplifying the
Presentation of Debt Issuance Costs,” which changes the
presentation of debt issuance costs in the financial statements.
Under this ASU, we now present debt issuance costs, except for
those incurred in connection with our revolving line of credit, in
the balance sheet as a direct deduction from the related debt
liability rather than as an asset. As allowed under this ASU, we
retrospectively adopted this accounting standard. Accordingly, we
reclassified $887 thousand of debt issuance costs from Other Assets
to Long-term Debt for the 2014 period. Additionally, in the fourth
quarter of 2015 we also prospectively adopted ASU No. 2015-17,
“Balance Sheet Classification of Deferred Taxes.” Under this
ASU, we now classify all deferred income taxes as noncurrent assets
or noncurrent liabilities. As allowed by this ASU, prior year
amounts have not been reclassified.
Contact Information
Anthony Borowicz
VP Business Development
Greatbatch, Inc.
716-759-5809
tborowicz@greatbatch.com
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