Betsy Cowell - Vice President, Finance and Treasurer Thomas Hook - President and Chief Executive Officer Michael Dinkins - Executive Vice President and Chief Financial Officer.

Charles Haff – Craig-Hallum Julia Kufman - RBC Capital Markets Matt Mishan - KeyBanc Gregory Macosko - Montrose Advisors.

Welcome, everyone to the First Quarter 2014 Greatbatch Incorporated Conference Call. Before we begin, I would like to read the Safe Harbor statement. This presentation and our press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and involves a number of risks and uncertainties.

These risks and uncertainties are described in the company’s Annual Report on Form 10-K. The statements are based upon Greatbatch Incorporated current expectations and actual results could differ materially from those stated or implied.

The company assumes no obligation to update forward-looking information included in this conference call to reflect change in assumptions to the conference or unanticipated events or changes in future operating results, financial conditions, or prospects.

I would like to turn the call over to your host for today, Vice President, Finance and Treasurer, Betsy Cowell. Please go ahead..

Thank you, Brittany, and hello, everyone and thank you for joining us today for our first quarter 2014 earnings call. With us on the call are Thomas J. Hook, President and Chief Executive Officer and Michael Dinkins, Executive Vice President and Chief Financial Officer.

In terms of today’s agenda, Tom will start us off with an overview of the results of the first quarter, key accomplishments contributing to our financial performance and remarks on our product lines. Michael will then provide additional comments on the 2014 first quarter financial results and discuss our 2014 guidance.

We will then open the call up to Q&A. As we have done in the past, we are including visual sides to accompany this presentation, which you can access on our website, www.greatbatch.com. Now, let me turn the call over to Tom Hook..

Thank you, Betsy and good afternoon to all of you who are joining our call today. Today, we reported first quarter 2014 revenue of $174.3 million, a 17% organic constant currency sales growth.

Three of our Greatbatch medical product lines, cardiac rhythm management neuromodulation, orthopedics and vascular delivered growth in excess of 20% for the quarter versus the first quarter 2013. I will talk more about the sales performance drivers later in the presentation.

Adjusted operating income increased 16% and diluted earnings per share totals $0.54, a 23% improvement when compared to the same period 2013. Cash flow from operations totaled $7 million versus the prior year usage of $7.6 million driven by our strong operating performance and improved asset management, principally inventory.

We hold firm our commitment to improve shareholder return by growing the top line 5% organically and returning two times that amount to the bottom line. Greatbatch has delivered year-over-year revenue growth for four consecutive quarters and adjusted diluted EPS growth seven consecutive quarters.

We are creating and professionalizing the Greatbatch sales and marketing organization to a standard commensurate for the global Greatbatch operations and innovation organizations. Capable of studying markets intensively, driving prioritization of key technologies and product development and leading OEM customers of product solutions.

This highly professional sales and marketing organization will drive a culture of new deals while simultaneously securing our core revenue. We are starting to see the benefit of these investments. Our global operations have created a competitive advantage to minimize business risk.

We maintain a culture of continuous improvement and a network of manufacturing sites that are tightly integrated into category teams and focused on delivering our objective have improved return on invested capital. Through volume and productivity initiatives, we have improved profitability in all product lines.

We aligned our R&D organization closer to our markets, which accelerates execution and launch predictability. Enhanced project management tools and new reporting capabilities will optimize our product development process across all product lines. Today, we have in excess of 40 new product development projects in progress.

We continue to efficiently move through the Algostim regulatory approval process and we believe we will be in a position to receive CE Mark in the second half of 2014 and PMA approval very early in 2015. Now, I would like to provide some comments relative to our various product offerings.

Cardiac rhythm management neuromodulation sales of $86.8 million were 23% higher than the $70.5 million in the comparable quarter 2013 and the revenue grew 2% in the sequential quarter-over-quarter comparisons. Several factors contributed to the strong first quarter performance.

First and most importantly, we continue to see strong performance with our core product portfolio of batteries, capacitors, enclosures, feedthroughs and shield assemblies. We also benefited from successful customer product introductions leveraging our new technologies.

We do believe some of our customers increased inventory levels, which we will monitor during the remainder of the year and we are comparing to a soft quarter in 2013. On a rolling four-quarter basis, Greatbatch continues to see an upward trend.

Our customers’ results through the most recent reporting period through the most recent reporting period have shown a similar trend in the comparable period. As most of our customers have yet to report quarterly earnings, we will continue to monitor the stability of the market.

Our orthopedic product line sales of $36.4 million grew 20% on an organic constant currency basis versus the first quarter 2013 revenue of $29.6 million.

During the first quarter last year, we are in the final stages of getting our manufacturing sites up to targeted production levels as we completed the Switzerland consolidation, which impacted sales for that quarter.

Our instrument product family continues to strengthen along with our implant business, which is benefiting from market share gains by one of our primary customers. We expect to see double-digit growth in orthopedic product line for the remainder of the year.

The portable medical product line first quarter revenue of $19.2 million was comparable to last year’s sales of $18.9 million, a 2% expansion. Rechargeable battery assembly application growth was very strong due to a relatively easy 2013 comparable.

This product family revenue was slightly ahead of fourth quarter 2013, which gives us confidence in our strategy to service the industry. Our single use battery packs lag the prior year first quarter, which is attributable to our decision to exit certain low margin applications.

We believe repositioning the portable medical product lines is the right strategy for Greatbatch and in the long-term for our customers. Our vascular product line grew 23% driven primarily by our catheter products such as our steerable sheath catheter.

We expect strong double-digit performance of this product line led by product launches and are introducing catheter offerings, as the sales force dedicated to deeper customer partnerships and our commitment to product innovation.

The energy, military, environmental product line results were in line with the prior year quarter as customer order patterns continue to stabilize. Michael Dinkins will now take you through a more detailed look at our first quarter results and our 2014 guidance before we take your questions..

18% sales growth, 17% organic constant currency sales growth, gross margins of 33% slightly ahead of first quarter of 2013, 16% adjusted operating income, improvement to $22.3 million, and adjusted operating margins representing 12.8% of sales.

$0.54 adjusted diluted EPS, a 23% increase, adjusted EBITDA of $31.6 million, up 12%, and operating cash flows totaling $7 million versus the usage of $7.6 million in the prior year. Slide 13 provides the reconciliation of our adjusted EPS from the first quarter 2013 to the first quarter 2014.

Sales mix and volume increases quarter-over-quarter contributed approximately $0.23 improvement to our adjusted EPS. Performance-based compensation negatively impacted the quarter when compared to prior year by approximately $0.07 as we have reflected performance-based compensation expense in line with the first quarter 2014 results.

In last year, we had soft quarters, so our performance-based compensation was much lower. With regard to operating expenses, RD&E expenditures accounted for $0.05 dilution for the quarter caused by several items. We had lower customer cost reimbursements for engineering projects in comparison to last year, a matter of timing in the year.

In 2014, design verification testing, DVT, expenses reported normal operations, where in prior years, DVT was adjusted from our adjusted operating income. This expense totaled $0.7 million for the quarter compared to $1.7 million incurred in the first quarter 2013.

Lastly, we incurred project cost associated with Greatbatch medical earlier than planned. Across Greatbatch, gross RD&E expenditures as a percentage of sales are in line with our expectations.

Selling, general, and administrative expenses were in line with our expectations and above the prior year quarter largely due to our increased sales in marketing investments partially offset by our cost savings in connection with our operating unit realignment in the second half of 2013.

Other items explaining the $0.01 adjusted EPS improvements include interest expense, which was lower in the quarter generating $0.04 adjusted EPS accretion due to reduced debt levels and favorable interest rates.

Our outstanding debt is now $195.0 million, which results in a 1.5 leverage to adjusted EBITDA ratio, a lower effective adjusted tax rate in the quarter of 34.2% versus 35.3% first quarter of 2013. This accounted for $0.01 improvement to adjusted EPS.

Offsetting the interest expense in tax rate favorability was the impact of the continued increase in diluted shares outstanding due to our stock-based compensation programs and the increase in our stock price. In the quarter, we have a $0.03 unfavorable impact.

We expect our adjusted effective tax rate and interest expense for the remainder of the year will be in line with the first quarter 2014. Now, I would like to provide some comments on our operating cash flows. Cash flows generated from operating activities totaled $7 million during the quarter.

Net income and improved working capital were the main drivers. Higher raw material consumption grow the inventory improvement offset partially by higher finished goods supporting customer orders. We ended with the inventory days at 92, a 16-day improvement when compared with the same period last year.

We are very pleased with our supply chain efforts to improve our inventory performance and contribute to our expanding ROIC. Customer collection activity show continued improvements and the increase in receivables are in line with sales.

Our return on invested capital improved 80 basis points when compared to prior year and resulted in an 8.3% performance. Turning to our 2014 outlook, we believe we will be at the upper end of our 2014 revenue and adjusted EPS guidance ranges shown on Slide 16. With that, let me now turn the call back over to the moderator to take questions..

Thank you. (Operator Instructions) And your first question comes from Matthew Mishan with KeyBanc. Please proceed. Okay, it looks like Matthew has (put down) your question. Your next question comes from Charles Haff with Craig-Hallum. Please proceed..

Hi, great quarter. Thanks for taking my questions..

Hi, Charlie..

Hi.

So, just a couple of housekeeping here CapEx, did you mention what that was, Mike?.

No, I didn’t. I will say that I don’t remember the exact number, so I will pull set out of the site, but it was in line with our expectations that we have for the total year..

Okay, thanks..

Without mixing that number..

Okay, thanks.

And any update, Tom, on the 100 Day Meeting on Algostim with the FDA, any updates there?.

I will give a specific update just that the 100 Day Meeting event past, we are still on our timeline as originally stated. And I am just going to reconfirm our timeline, so you can sort of nice from that that we are advancing on schedule..

Okay, great. Thank you. And one more question and I will jump back in the queue here, putting aside the easy comparisons on revenue historically, your first quarter on a dollar basis has been lower than your fourth quarter by most business lines and this quarter you were up in the first quarter in multiple areas versus the 4Q.

Would you say that we have kind of reached a new reset point, I know that you have worked hard to kind of get to this point? Should we kind of view this as a new normal for you guys with advancing sequential growth in 1Q versus 4Q or how should you – how would you kind of characterize that?.

Charles, great question.

As much as I’d like to think that we could smooth out the asperities quarter-to-quarter, we still think that on a rolling 12-month basis is kind of a way to look at what we do in terms of growth, but your point is fair as we become a much larger organization and at many more product lines, many more customers and with each customer many more systems and components, it has certainly smoothed out our variability quarter-to-quarter.

So, as we have implemented the 5% in 2x leverage philosophy and it made investments in sales and marketing, but it’s definitely raising the quarterly run-rates on a regular basis and we expect to maintain that trajectory going forward.

And that’s obviously why we have provided the guidance we have for the year and we are confident that the good start in Q1 is the best way to make the target to be laid out for ourselves..

And can you just remind us in terms of new CRM products and neuromodulation products, how long is the sales cycle usually for those products that you manufacture for the large OEMs?.

It can range the – I will say a new product is typically 24 to 36 months from the original development to production. A new technology would actually be 48 to 60 months, because you would have to do several years of technology development and then usually two to three years of product development.

So, as I have said many times before, the trends that we see in cardiac rhythm management neuromodulation are reflective of successes that have occurred over the last three plus years. And that is hard work that we have won.

And just as a reminder when we went to develop – when we win a sale with a customer, we kick off R&D spending for that 3 to 5-year period before we actually get revenue. So the revenues we are enjoying now are due to R&D expenses we have incurred over the last 36 plus months..

Great. Nice work guys. Thanks..

Thanks..

And that concludes the question-and-answer session. I’d like to turn the call back over to Betsy Cowell for closing remarks..

Glenn, this is Betsy, do you have a question?.

Can you hear me okay?.

Glenn?.

Hi, this is Julia Kufman calling in for Glenn.

Can you guys hear me okay?.

Yes, switch on..

Okay, great.

So, I wanted to see if you could speak just some of the underlying trends in CRM and orthopedics this quarter and then some of the driver that can think about the quarterly cadence for the reminder of the year, but they will see a little bit of deceleration in the back half and just in terms of modeling it?.

Yes, I will talk to CRM first, Julia is we are obviously a very large player with all five cardiac rhythm management companies and we have long-term agreements with each of them for multiple product lines. We also report obviously neuromodulation sales in the CRM. There are similar component technologies.

And we are also widely represented in neurostimulation customers from the big players all the way to smaller companies. When you look at the trends in cardiac rhythm management, the market clearly is stabilized. It’s in our opinion is recovering.

Our biggest wins in cardiac rhythm management really relate to new technologies and new products that we won customers in CRM in neuromodulation.

So, from a standpoint of putting ourselves in a position, where we can grow with the customers is to win projects with them to develop those technologies and whatever the market growth rate would be we would take advantage of that market growth rate to the best we can.

But as the trajectory on cardiac rhythm management is slightly negative, I think the position we would take is that we still can roll the category through technology introduction for us, in addition beyond technology introduction, we can win outsourcing of the OEMs business from their products and manufacture to us.

And we have capitalized that each of those three categories, market share growth, as CRM is stabilized, new product wins as they convert to our technology and getting them to outsource their product lines to us that they make internally. And I believe that trend will continue and will focus on winning in each of those three categories.

So, well, I see CRM market stabilizing for us. I think there is other ways for us to grow beyond just the market contribution even though we are a large player. On orthopedics, completely different market, we are a very small player in a very enormous market.

And while in general orthopedic end-market growth for our customers is definitely more favorable today in the mid single-digit range which definitely feeds this growth.

We have ample opportunity to win new business with orthopedic customers that we either historically have done no business with or convert product lines that they have outsourced to other third-party competitors in orthopedic supply chain.

And that’s how we are growing at the 20% plus in – well, we are not immune from the market growth, we certainly like to see that ortho market is healthy, there is other avenues for us to grow there – for us to grow much faster than the underlying markets. Hopefully, that helped to answer your question, Julia..

Yes, yes, that’s good.

And on Algostim, was there any sort of progress in finding a commercial partner?.

From a commercial partner perspective, it is as we continue to eclipse the milestones in a lot of the heavy lifting in terms of product design in the regulatory process, the partner discussions have definitely heated up. And I would expect it as we approach the CE Marking and the PMA approval that will probably create a sense of urgency around it.

We are playing our hand very carefully and coolly and intend to do so as we move forward. And that process reaches more significant milestones we will announce them.

So, it’s still active along with the regulatory approval process of the project and we anticipate making other announcements during the course of the year, but nothing new to report right now that we feel comfortable sharing..

Great, congratulations on good quarter..

Thank you very much..

(Operator Instructions) And we do have a follow-up question from the line of Matt Mishan with KeyBanc. Please proceed..

Hey, congratulations on a great quarter and thank you for taking my questions..

Welcome, Matt..

And I apologize I got knocked off the call and if these are repeats just let me know.

Can you talk a little bit about the margins, especially at Greatbatch medical you guys have had tremendous revenue growth over the last several quarters, but has it necessarily translated through on the margin side? Can you talk a little bit about what’s holding that back?.

I think from Greatbatch medical, we still continue to have very nice leverage into the business and we are still committing to 2x our revenue growth in margin expansion. We are to maintain our revenue growth trajectory still investing heavily in R&D and sales and marketing.

And obviously as we do meet our targets, it does drag our compensation expenses, which are variable based on performance into consideration as well.

So, well, I don’t want to say ever as a CEO and a CFO from Mike Dinkins that were satisfied with our leverage, but we are confident in our ability to do the 2x leverage argument without creating a research and development or sales and marketing expenses.

And generally, Matt, that’s the careful balance here as investing at the same time as we are growing to maintain that revenue growth trajectory and then maintaining the balance on margin expansion at the 2x leverage. So, we feel we got the right balance breakdown.

We got the year kicked off the way we want it and we don’t be able to prematurely taking too much profitability in advance is the right thing to do, because it will hurt our revenue growth prospects as we get out until the end of the year in 2015 timeframe..

Okay, great.

And then just on your guidance I know you said you are going to be towards the upper end, but how do I get from the first quarter growth versus mid to high-teens to kind of 5% to 6% for the full year?.

I think that if you take out the first quarter and look at the balance of the year that was still give as an overall growth in the 2%, 3%, 4% kind of range and a significant high end of the guidance and last year, second half of the year you remember that fourth quarter of 2013 we had 13% of added growth so, we do have tougher comparables to compare against in the latter half of the year.

As Tom indicated when we look at our first quarter number we were partnered with companies that we’re doing some new product introductions. And we know that when those introductions are coming into the marketplace and although we can’t say with certainty we think some of our customers did increase the inventory levels in the first quarter.

Keep it in mind that our first quarter doesn’t cut off exactly at the same time our large customers. So when they order could be – we think favorably impact us in the Q1. So, all of those factors allows us to say at this time we think what their upper end, but obviously we will continue to try to outperform that and try to do better with that..

And portable medical, can you just expand on your strategy in that group and maybe elaborate a little bit about your exposure in the single use batteries versus kind of the rechargeable battery assembly?.

Certainly, as – so portable medical strategy and entering this market was to move our external battery product lines away from just energy, military, environmental to medical applications, since all implantable medical devices in some way, shape or form are associated with an external medical device, which we call them portable medical, be it a power drill, be it a AD, a unit that would program a pacemaker or a defibrillator, they all require some external device that needs power and power management.

We entered that market through product development as well as several acquisitions. And our strategy is to provide those power solutions that either obviously had a Greatbatch medical go in the body with implantable batteries or in portable medical product line for the Greatbatch medical would be the external devices.

The regulatory and manufacturing process is a very similar in the types of compliance etcetera programs that are required or similar although the technology has been underlined and we’re very different.

One of the things we did post acquisition integration for the companies that we acquired is as we rationalize off the product line is on the several products that we made at very low margins, which is why we rationalized those out – which is why it’s not growing, but I can say from a product development standpoint is more active products and product development to portable medical and any other areas of company due to the size and the scope of that market opportunity so we expect as we rationalized out the poor margin revenues that we did not want to perpetuate that we are going to continue to win new business in a quality new business that’s going to result in that being a double-digit grower for us over the longer run.

And we view that as critical market for us at portable medical power as it associates with implantable power is a very important market for us to be represented and given that systems like our Algostim platform that we’re commercializing hedge five portable medical devices that all required power that we’re designing those power management application support and it’s a technology we have to have to be successful on the longer run..

Great. And then last question from me on the cardio CARDIOMONIX, I know on your JPMorgan presentation back in early January, you was thinking you would submit that for approval may be in the back half of 2014.

Is that still one plan and you’re also working with JPMorgan on CARDIOMONIX?.

We’re only working with JPMorgan and Algostim as CARDIOMONIX have plans haven’t changed with CARDIOMONIX to-date we’re still in an active discussions with the partners, determining what we’re going to do with the projects and the price development progress of the project is continue forward as well..

Thank you and a very good quarter..

Thanks, Matt..

Thank you..

(Operator Instructions) And your next question comes from the line of Gregory Macosko with Montrose Advisors. Please proceed..

Yes, thank you. Just from an question with regard to the discussion of the final three quarters of growth for 2014, you – is there any – can you give us any color or differences between the difference products lines, CRM versus ortho, I mean, ortho license is going to be stronger, CRM perhaps weaker and portable etcetera.

Can you give us any sense there?.

Certainly, Greg, thanks for the question as I would expect with ortho continues a strong phase and I expect vascular continues on a strong tale.

I believe that cardiac rhythm management or modulation will return to it’s smooth average quarterly performance as consistent with our guidance that we provided for the year that’s tends to be, because it’s few customers with large order quantities, it’s best to look at the smooth data. So, our expectations would be fall back into that trend.

I think for portable medical, there is still ways to look at this. It’s the actual data that we have, but we tend to look at the performance of the business backing out the business that we harvested. And if we back out the business that we harvested, we continue to look at portable medical very healthy grower throughout the course of the year.

It will of course be winning deals in designing them, but it will not be really achieving revenue out of that in the earnest until 2015. So, it will be building in its growth rate over the course of 2013. So, as we look forward we still think we are going to post some nice growth for the year. We have got obviously a healthy start.

We are really giving an indication by moving to that high end of our guidance range as we are not ready to change guidance yet, but we are bullish on the year.

And as Mike said as being aggressive operators, we are going to continue to run the business to outperform what milestones and targets we have in front of us and try to outperform the guidance we put forward those three..

Good, thank you..

And that concludes the question-and-answer session. I’d like to turn the call back over to Betsy Cowell for any closing remarks..

Thank you, Brittany. I would like to remind you that both the audio portion of the call as well as the visual slides will be archived on our website at www.greatbatch.com will also be accessible for the next 30 days. Thank you everyone for joining and we appreciate your questions and talk to you soon..

Thank you for your participation. That concludes today’s conference. You may now disconnect. Have a wonderful day..