Betsy Cowell - VP, Finance and Treasurer Thomas Hook - President and CEO Michael Dinkins - EVP and CFO.

Greg Chodaczek - CRT Capital. Glen Novarro - RBC Capital Markets Charles Haff - Craig-Hallum Matt Mishan - KeyBanc Jim Sidoti - Sidoti & Company.

Welcome, everyone, to the second quarter 2015 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 involve 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 obligations to update forward-looking statements information included in this conference call to reflect changed assumptions, the occurrence of unanticipated events, or changes in future operating results, financial conditions, or prospects.

I would like now to turn the call over to today’s host, Vice President of Finance and Treasurer Betsy Cowell..

Hello, everyone, and thank you for joining us today for our second quarter 2015 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.

As we have done in the past, we are including slide visuals to accompany the presentation, which you can access at our website at www.greatbatch.com. Once Tom and Michael have completed their presentations, we will then open up for Q&A session. Let me turn the call over to Tom Hook..

Thank you, Betsy, and good afternoon to everyone joining the call today. We are very satisfied with the second quarter results which were consistent with our expectations. As previously communicated, we expect to finish the year strong based upon new and existing customer business pipelines and carry this momentum into 2016.

Second half 2015 customer ramp plans for new products and technologies will offset end of late revenue impacts. We are confirming guidance for 2015 and later in this presentation we will provide some insight on our 2016 expectations. We continued to make progress during the second quarter against our strategic plan.

Earlier today, we filed a Form 10 registration statement with the U.S. Securities and Exchange Commission for the proposed spinoff of Nuvectra. This is an important milestone towards our strategic impaired of commercializing complete medical device systems.

Investments in technology, capacity and capabilities are on schedule to deliver improved operating performance into 2016.

CCC Medical devices acquired in August of 2014 continues to generate an exciting pipeline of neuromodulation opportunities where we can broadly leverage our integrated engineering services and comprehensive manufacturing capabilities. Let’s turn to the financial starting with slide 6 summarizing our key performance metrics for the second quarter.

We delivered solid quarterly performance which is consistent with our expectations. On a sequential quarter-to-quarter basis our key measurements improved.

For the second quarter we delivered sales growth of 4% on a constant currency organic basis, adjusted operating margins of 12.7%, adjusted earnings per share of $0.64 and adjusted EBITDA of $31.2 million or 17.9%. An analysis of adjusted earnings per share is also highlighted in the presentation materials.

Most notable is the favorable impact of the lower tax rate of 20.7% for the quarter. We believe we can sustain lower tax rates and our guidance for the total year is approximately 23.6%. The next several slides will review each product line and provide insight to the performance.

Negative mix for product sold OEM customers resulted in a gross margin decline in the quarter by 90 basis points when compared to the prior year. This is not an issue for the total year results and we continue to expect gross margin and operating margin improvements for the total year.

As expected, second quarter 2015 operating expenses are higher when compared with the second quarter 2014 due to the acquisition of the CCC medical devices. Now turning to slide 7 we provide additional details about our revenue performance.

For the quarter, revenue totaled $174.9 million representing an 8% sequential growth versus the first quarter 2015, compared with the second quarter 2014 revenue expanded by 4.1% on a constant currency organic basis and 1.6% on a GAAP basis.

The impact from organic [Indiscernible] reduced sales in the quarter by approximately $5.5 million due to the strengthening U.S. dollar versus the Euro as compared to 2014. We are encouraged by the improvements in our cardiac and portable medical product lines.

Cardiac/Neuromodulation revenue improved 18% compared to the first quarter of 2015 and 12.7% compared to the prior year. This product line can vary from quarter to quarter, so performance of $320 million in revenue on a rolling 12 month basis reflects a 6% decrease. However, we expect whole of 2015 results to be in the low single digit percentage.

We are on schedule moving our production for the Portable Medical to the new production facility. We expect continued improvement in Portable Medical sales performance as we systematically work with our customers to qualify production with various regulatory bodies around the world.

Moving to slide 8, I will discuss performance of the individual product lines. Cardiac/Neuromodulation revenue grew 12% in the quarter to $89.5 million including intersegment sales. We achieved double digit growth in three areas, Medical batteries, shield assemblies and neuromodulation.

We work closely with customers during the quarter to ensure if inventory physicians were adequate to facilitate summer holidays and facility shutdown. Revenue for the first six months of 2015 is flat with the first half of 2014 and in line with our expectations.

Revenue patterns have normalized and with continued success in neuromodulation we are confident we will deliver on our commitments. Orthopedics product line sales of $35.5 million grew 8% on an organic constant currency basis when compared with the same period of 2014.

Foreign currency fluctuations impacted as reported sales by approximately $5.5 million. Instrument sales remained strong, particularly [Indiscernible] implant.

Throughout the first six months in 2015 organic constant currency revenue growth total 13% and we anticipate growth for the year to be in the high single digit to low double digit range on an organic constant currency basis. Portable Medical sales totaled $17.7 million in the second quarter growing 6% compared with the second quarter of 2014.

The manufacturing transition to Mexico is progressing as planned with initial production slated late in the fourth quarter. We renewed our contract with a major customer this quarter and expect to introduce proprietary power solutions to drive future organic growth. Vascular product line sales of $12.9 million were 15% below second quarter 2014.

End of life products and customer inventory management initiatives unfavorably impacted sales again as expected this quarter. We have seen order patterns improve as customers work off excess inventories.

Later in the year we are introducing several new products into higher growth sectors and our manufacturing move to Mexico will position us to be more competitive in both new and existing markets. EME revenue of $16.5 million was 23% behind the same period in 2014 attributable to a strong second quarter in 2014.

Year-to-date revenue was 13% below first half 2014. These results were driven by lower energy revenue with a continued weakness in the market place. This quarter we experienced more demand from our larger customers which will be known as Nuvectra after the spinoff.

We also announced that Scott Drees has been named Chief Executive Officer of Nuvectra and Dr. Joseph Miller will step down from Greatbatch’s Board of Directors immediately prior the completion of the spinoff to accept the appointment as the Director and Chairman of the Board of Nuvectra.

Scott Drees has worked 34 years in the implantable medical device industry, 20 of which have been focused on neurostimulation. He was instrumental in the development of the fast growing neurostimulation market as an Executive advanced neuromodulation systems now St. Jude Medical Neurological.

Greatbatch has benefitted from the long standing partnership with Scott to his tenure as the neuromodulation portfolio manager for the QiG Group and as President of QiG’s subsidiaries Algostim and [Indiscernible]. Dr. Miller has served as a Greatbatch director since 2003.

He shares the technology strategy and investment committee and is a member of the corporate governance in nominating committee. He retired in 2012 as Executive Vice President and Chief Technology Officer for Corning Incorporated, a position in which he has served since 2001.

Before joining Corning, he served as Senior Vice President of DuPont [Indiscernible] in addition to other Executive leadership roles. Dr. Miller also serves on the Board of Directors of Lightwave Logic Incorporated.

With Scott Drees as CEO and Joe Miller as Board Chairman, Nuvectra will have two capable and experienced leaders and will be well positioned for success from day one. In the next slide we list of benefits to the Greatbatch shareholders. Shareholders will receive shares of Nuvectra when the spinoff becomes effective.

Additionally, Greatbatch estimates that annual operating expenses will be approximately $12 million to $16 million lower post spin. Finally Greatbatch will manufacture the Algovita platform through a launch of manufacturing arrangement with Nuvectra.

The spinoff allows investors to separately value Greatbatch and Nuvectra based on their respective, unique investment identities taking into consideration performance, lists and future growth prospects reach business.

Separately, each company is further enabled to focus their respective attention and financial resources under distinct operating priorities and strategies including the different growth opportunities available to each company.

We believe that company will be able to better attract, develop and retain key employees through the use of equity based and performance based incentive plans that directly link employee compensation with specific business objectives, financial goals and performance metrics.

With regard to capital markets, we expect each company will have increased flexibility to invest in innovation, product development and marketing to pursue strategic partnerships and establish capital structures tailored to their respective business. I will now turn the call over to Michael to cover our balance sheet and our 2015 guidance..

Thanks, Tom, and good afternoon everyone. It’s my pleasure to discuss our balance sheet metrics and conclude with a discussion of 2015 guidance which we are reconfirming. Slide 17 shows the key balance sheet metrics.

Greatbatch has a strong balance sheet with positive cash flow, totaling $22.5 million for the first six months of 2014 and a leverage ratio below 1.5:1. Adjusted EBITDA, on a trailing 12 month basis, aggregated to $123.8 million.

We experienced a slight contraction due to lower adjusted operating income; similarly adjusted return on invested capital contracted 40 basis points due to the lower 2015 operating income when viewed on a trailing 12 month basis. As we progress through the year, we expect ROIC to be closer to 9%.

Inventory increased $10.9 million for the first six months of 2015 as we build products for the second half revenue and safety stock for the start up of the Mexico facility via vascular and Portable Medical products are being transferred. Higher [ph] days inventory outstanding will move towards more normal levels by the end of the year.

CapEx totaled $22.2 million through June 2015 reflecting the investments in our manufacturing facilities, principally Mexico and France. Turning to slide 19, we are confirming the guidance of 4% to 6% revenue growth and 2x revenue growth improvement in adjusted diluted earnings per share performance. Revenue guidance is $715 million to $730 million.

Currency translations is expected to have a negative impact of approximately 2% or $14 million, which is why we’re expecting to be at the lower end of our revenue guidance. Adjusted earnings per share guidance is $2.61 t o $2.71 assuming fully diluted shares of $26.5 million.

Our guidance includes the impact of Nuvectra as if we will continue to run it through the end of 2015. Until the proposed spinoff happens, we will reflect all associated expenses in our GAAP and adjusted results.

Our estimate of other operating expenses totals $35 million, which includes estimates for the transfer of our vascular and Portable Medical product lines to Mexico and deal-related costs of the proposed spinoff. The deal related cost for the proposed spinoff are estimated to be $10 million to $12 million at this time.

This quarter, operating income was adjusted for litigation expenses to defend our intellectual property. These expenses totaled $2.2 million for the first six months and the estimate for the year is $4 million to $5 million. 2015 guidance assumes the following effective tax rates.

GAAP effective tax rate of approximately 23.5%, adjusted effective tax rate of 21% to 24%. We estimate capital expenditure for the year to be $40 million to $50 million driven by capital investments on our global manufacturing locations primarily Mexico and France.

Adjusted operating cash flows are expected to be between $80 million and $100 million but we anticipate being closer to the lower end of our guidance if we go forward to spinoff. We will incur related expenses for the proposed spinoff which at this time we estimate to be $10 million to $12 million.

Tom gave you a status update on the proposed spinoff of Nuvectra. Slide 20 outlines the three ways the spinoff will benefit Greatbatch shareholders. First, each Greatbatch shareholder will receive a dividend of Nuvectra shares.

Second, we are expecting the operating expenses on an annualized basis to go down by $12 million to $16 million and most importantly Greatbatch will manufacture the Algovita platform for Nuvectra. We conclude our presentation on slide 21 by reconfirming management focus on driving shareholder value.

We are positioned for organic growth because the long term agreements with a multi neuromodulation companies and continue investment in R&D to drive innovation that allows our OEM customers to expand market share.

We are positioned for margin expansion and continued ROIC improvement because of the investments we are making this year in new facilities and expansions in Mexico and France.

The CCC Medical devices acquisition has been a great success and we have a healthy pipeline and targeted acquisitions that will strengthen our competitive position and accelerate our organic world. With that, let me now turn the call back over to the moderator to take questions..

[Operator instructions] Our first question comes from Greg Chodaczek with CRT Capital. Your line is open..

Congratulations. Just a quick question on QiG, hopefully you will answer it.

In terms of revenue for QiG what is in that number for the second quarter?.

The QiG revenues for the second quarter consists of revenues for our NeuroNexus business and a little bit of revenue that we have for our Algovita business because we are somewhere in the product in Europe and then the last piece of it also consists of the revenues from CCC Medical acquisition that we did August of last year..

Okay. So CCC Medical is put into QiG hopefully starting January 1, 2016 I’m assuming that’s going to end up somewhere else, is that correct still on the Greatbatch P&L..

No where it will be in terms of segments we’ll decide that after the internal spinoff, but CCC Medical through engineering services and development work will continue to have customers and continue to have revenue even post the spinoff of Nuvectra.

We have taking customers at CCC Medical as they finish their clinical trials and start doing their production, have more high volume production beyond what CCC Medical is doing. We are going to report those revenues in our Greatbatch Medical segment because there will be a manufacturer within the facilities in the Greatbatch Medical runs.

So we’ll continue at neuromodulation and Greatbatch Medical and we’ll continue to have engineering services in QiG..

Okay.

So that’s all staying within the Greatbatch Medical parents and none of it goes with Nuvectra?.

That is correct. We are keeping CCC Medical and we are entering into agreements with customers as they finish their trial for CCC Medical to do manufacturing with some of the Greatbatch Medical center..

Perfect.

And in terms of expenses for QiG that will move over to Nuvectra you talked about $12 to $16 million?.

Million, not billion..

Maybe if I said billion excuse me, million, I wish my checking account with that way. But where should we – as we modeled or we think about going forward, where is the majority of that expense being pull out of.

I’m assuming a lot of its R&D, some will be SG&A and some will be COGS, can you break that down at all?.

I can you give you a little bit of guidance on it, roughly I would say about two-thirds of it will be R&D and one-third will be sales and marketing. That would be the breakdown that will give as guidance.

There are some sales and marketing people that are running through our P&L now that are obviously supporting the sales that we have in Europe and preparing for FDA approval in sales that we expected to have in the U.S. and they would spin-out as far Nuvectra and there is R&D expenditure that will go as part in Nuvectra also..

Fantastic. Thank you, Michael..

So as rough time I’d say one-third and two-third..

Okay, great. I’ll jump back in the queue. Thank you again..

Thank you. Our next question comes from Glen Novarro of RBC Capital Markets. Your line is open..

Hi. Good afternoon guys. Two questions, first with the $12 million to $16 million that won’t be spent algostim 2016. Tom, I was hoping you maybe can help us think about what you do with that in 2016, does the falls to the bottom line. Do you reinvest in – reinvest there, any color would be appreciated. Then I had a follow-up..

I just think, Glen, it’s very simple. Our attentions are to let that fall to the bottom line from a Greatbatch perspective..

Okay, great. And then in your prepared remarks you talked about you had a small pipeline of new products. Your customers had a strong pipeline of new products and your expected revenues to pick up in the second half of the year.

Can you maybe just give us some color behind this pipeline, the timing that immediately hit in 3Q, is it more 4Q backend loaded and which division do we see it in? Thanks..

Certainly, Glen, as you know our pipeline takes a long time to develop, so the development agreements that represent that pipeline are years prior to this ramping period.

While the ramps of those products will commence to a small degree in the third quarter, really a full quarter effect of those ramps will really start to appear for us into the fourth quarter timeframe throughout the fourth quarter.

Neuromodulation that obviously we report in the cardiac neuromodulation line is going to be a significant pickup for us because of those wins that we’ve had. And I think that as we made in the comments as we recovering portable medical will pick and then also in vascular has we have product launch in the fourth quarter.

So I’m still because of macro market conditions and the energy product line little bit more bearish. We are doing a good job of launching products there, but they are just facing the headwinds of the market which is not recovered.

We’ve done a very good job in that business mitigating those pressures, but it’s going to offset the effective, some of the technology launches there and they’ll nullify each other. Then that will give you kind of the macro view of how we think those variables will play out..

Okay, great. Thanks Tom..

Thank you. Our next question comes from Charles Haff of Craig-Hallum. Your line is open..

Hi. Thanks for taking my questions and congratulations on the progress with Nuvectra.

Question for you on the algostim platform, will that continue to be sold to CCC customers and what’s the structure for that?.

The structure for the Charles, is the Algovita platform would for broad use in neurostimulation would spin out with Nuvectra and Nuvectra would commercialize that technology.

The technologies that we have within the Greatbatch fit our retain, which is our traditional engineering services work we do with other customers in neurostimulation would not use the Algovita platform.

We would use other neurostimulation platforms that we have developed along with the CCC medical devices to be able to commercialize and partnership without customers that are in other disease state. So the therapy for that channel for commercialization for that Algovita platform would be done through the spin-out Nuvectra..

So could you envision a scenario where CCC customers maybe a customer of Nuvectra?.

Nuvectra will have the ability to run itself as an independent company. And there would be no restrictions on them to be able form downstream partnerships within the neurostimulation industries, not only with Greatbatch, but they could with CCC medical device customers. It’s feasible.

But clearly because they are first targeted indication for the Algovita platform is Spinal Cord Stimulation or intractable pain that we believe that that’s with our focus on initially, and then potentially downstream they could get into other areas that could provide some overlap, but I don’t – wouldn’t expect that immediately..

Okay.

And then would you be willing to share how long the manufacturing contract will be between Greatbatch and Nuvectra, is it in perpetuity or is it has some finite term to it?.

It would not be in perpetuity it would have a finite term, but we have not yet fully disclosed what the terms of that agreement would be, but it would allow Greatbatch to manufacture for define period of time for Nuvectra and as Nuvectra run itself as an independent company, it could sizably be able to leverage other resources in other companies for technology and manufacturing services and obviously we would compete for that and we’re quite confident in our ability to light the new perspective Nuvectra management team with our capabilities..

Okay. And then one more question on EME slide number eight, looks like you added a bullet for remote monitoring. I know that’s a growing trend in the med device industry.

How should we think about remote monitoring in terms of materiality, is it still in its infancy for you guess or far long, how many products anyway you want to characterize it, I’m just trying to get a sense for how material this maybe over the next couple of years? Thank you..

Certainly, Charles, that’s very [Indiscernible] you is more and more as operators and energy services are trying to understand how to better utilize the products we sell to them. They are interesting in collecting data not just on the battery longevity and performance but on the broader set of parameters for the down haul tools they’re using.

So by enabling data collection needs, we can end up providing them a data service in addition to the portable power needs and the intension is to integrate those together to have a more integrated sale in the energy space.

So that’s a phenomenon, that’s emerging now and we feel that we’ve been able to gain access to very good capabilities for monitory, data monitoring and our attention is to continue to integrate those with our battery technologies in partnership through custom designs with our energy customer and integrate those solutions into their tools that they’re using.

So, I think it is not a mainstream adoption across the industry today. It is going to be driven by the major players first and then it will slowly trickle down and expect in the broader industry as there is more comfort with it, but it will more of an evolution than a complete overhaul of the industry..

And will this be monitoring within medical devices in the future or is this going to just be confined to energy?.

Well, as you know, the Algovita platform has the ability for incredible amount of data collection and that’s been leveraged in that platform. So for implantable medical devices those technologies do exist.

I think in the energy sector collecting data was historically more oriented towards the geological aspects of the exploration not on the tool performance, vibration, battery life, battery current output et cetera and that’s just changing in that industry, but implantable medical I think the devices are already at that level of sophistication if not more.

And I think they are moving on to more physiological sensing and detection now, which is obviously much more complicated than you’re going to find in the oil and gas industry..

Great. I have more questions, but I’ll jump back in queue. Thank you..

Thank you. Our next question comes from Matt Mishan of KeyBanc. Your line is open..

Great. Thank you for taking my questions..

Hey, Matt..

Hey. Just a couple on CRM before moving on to Nuvectra. Tom I guess the tone in the press release towards CRM I think was a little more bearish than your tone on the call.

I couldn’t tell whether or not you think that your new programs would be able to offset like you said and grow for the full year or whether or not they can mitigated and maybe just decline a little bit less?.

I think best the way to think is that when you look in the short run for CRM is there can be a lot of quarterly variation, so depending on the frame of time you can hear my voice or a press release into bearish or bullish sentiments.

I think when you look at the rolling 12 month period of time there is definitely wins that we end up having to face in terms of products that are being end of life, but we also have major technology launches as well as we’ve done a much better job neuromodulation and expanding that product line.

So I think in the longer run you are hearing my voice with much more bullish sentiments across the opportunities and I think as we continue to move forward we have a very good idea of the projects that we’ve won over the past two to three years.

We have a very good idea when customers are commercializing those technologies, so it’s a lot easier to be bullish over the long run, because we have that visibility, it just a question of timing and of course we also feel that with the work that we’ve done out of CCC medical devices on the system side and respectively Algovita launch through Nuvectra we expect those to also provide significant acceleration into the cardiac neuromodulation area once we get beyond the spin and the FDA approval of the Algovita platform.

So for those reasons you can pick my voice. I am bullish on the prospects there recognizing it is a lower growth industry but there is still many growth avenues for us going forward. But I can’t ignore the short term bumpiness that typical end of life transitioning to new technology ramps tend to bring through the quarterly numbers..

Okay. That was helpful. And then you had a great quarter in cardiac neuromodulation.

I’m just trying to – and I know Michael was talking about once never moves from low volume to high volume you’d potentially move that into that segment, but does you do that this quarter, because it seems part of the bump may have been moving some of the production from QiG and some of the sales that QiG into cardiac neuromodulation?.

Yes. This quarter we are trying to see some revenue that has moved up into the CN line is less than $5 million, but that is part of the reason for the second half that we feel will have continued better performance.

And we will also be reporting the Algovita manufacturing revenues in that line, so we look forward to moving Nuvectra forward and getting FDA approval and again that create as Tom indicated one reasons why long term, we feel pretty good about our cardiac neuromodulation product line and [Indiscernible] to grow..

And then moving on to Nuvectra first off thank you for the additional color and the clarity, I think it’s great. If you look at the $12 million to $16 million in savings you were expecting.

I read, I was able to get through the Form 10 really took this morning in the middle of earnings season by that we get through it, it look as if the loss is associated with the assets you are spinning out were a little bit more sizeable on the losses and more equivalent to what you been – more equivalent the cost you’ve had in QiG, so maybe just the difference between the $12 million to $16 million in savings and the losses that you’ve been incurring in QiG over the past couple of years?.

The amount that we have given guidance on as the amount that were very comfortable, will fall to the bottom line and improve our performance going forward. The total amount of loss as you noted in the Form 10 is actually more than that.

We are in the process of working through our strategic plan and preliminary plan for next year and doing up bottoms of roll up to estimate all of the research and development expenses that will take to have a healthy pipeline to sustain our revenue growth going forward.

For that reason rather than reflect all of the costs that is associated with Nuvectra following to the bottom line we gave guidance to the months that we were very comfortable will fall to the bottom line.

And then as we work without Board of Directors, we actually have a meeting coming up in a couple of weeks and lock off on our strategy, we’ll determine our numbers and we’ll update accordingly as we go forward..

Okay. That’s great.

And my assumption is that you’re going to have to obviously fund Nuvectra and you also have to think about the liquidity of share per spin so my thought as always been y in road show and do an IPO at some point in the back half, one is that correct and two if so what is the appropriate valuation that you’d be willing to accept in that situation for Nuvectra and generally thing, what do you think the value of it is?.

Matt, I think the best way to think about your general outline is correct is we approaching complete the Algovita PMA approval will be setup for the Nuvectra management team and sponsor them at a road show to go out and speak with perspective investors and advance to the spin and you’re correct then we’ll following the review with the Board of Directors will do the final reviews and approvals of that and now that Mike make a commentary on the valuation side..

You’re also correct in that, we will put some amount of capital into the business to get them started. And we will work with as you know we’ve engaged Piper Jaffray as our bankers to help us with the valuation. I believe that at this point in time it’s premature to speculate on exactly what we think the value of the business will be.

And obviously it is a decision of the Board of Directors on what’s acceptable. So that’s why we refer to this as a proposed spin-off. As we work through the final numbers and present to our Board, a capitalization plan and a valuation plan. They will then will make decision when that we will actually spin the business.

I may modify the amount of the capitalization is side of us. So it’s going to a board driven decision that we will be making over the next few months..

Okay. Great. Thank you very much for taking my questions..

Thanks, Matt..

Thank you. Our next question comes from Jim Sidoti of Sidoti & Company. Your line is open..

Good afternoon, can you hear me?.

Yes, we can Jim..

Yes, we can..

Great. On the quarter, the neuromodulation in cardiac came in much stronger than I had expected.

I think you would been a little more pessimistic for that business on the last quarter, were there some sales like that pulled from partially the third quarter that was altering that or you see the general pickup in that market?.

Well, we’re definitely benefiting in the CN line from the commercialization of medical device systems, but we also see the quarters do have some variability to them.

And so you saw in our second performance that compared to our first quarter performance that we were stronger and some that is just the quarterly variability that we experienced is some of the launches in the end of life phase in and phase out that leads to those, but also when we get to end of quarters around fiscal year ends for customers for vacation periods that could have effect.

So we tend to look at the rolling 12 month data Jim as you know to provide more of a macro indicator and that consistent with commentary from before is in the longer we’re bullish on the CN line because of we retaining and building on our core component franchise, but then we’re launching the system sales in particular neuromodulation that will continue to build strength for Greatbatch both three and post the spin out of Nuvectra..

To get to your midpoint of your revenues guidance for 2015 you’re looking at a sizeable pickup in the third and fourth quarters does that mostly the CN line would see that or is that a question about the product lines as well?.

I think you’ll see with the exception on energy improvement in all of our product lines in the second half of the year, but a good portion of that is driven by cardiac in neuromodulation and one of the drivers of improvement in new contract that we have started production from CCC customer that has now introduce their product into the U.S..

Okay. All Right.

I just wanted to be clear, $12 million to $16 million in cost savings from the spinout that’s a pretax number, correct?.

That is a pretax number..

And that’s U.S.

tax rate?.

Yes..

Okay. Thank you..

Thank you, Jim..

[Operator Instructions] Our next question comes from Charles Haff of Craig-Hallum. Your line is open..

Hi, thanks for taking my follow-up questions. So for portable medical you had a relatively easy year-over-year comparison there.

Is a $17.7 million number kind of a sustainable quarterly revenue for the remaining quarters of the year or do you think it’s going to be a pretty variable?.

Charles, we have to remember this unique nature of the portable medical line is we’re moving the entire production facility from our Beaverton, Oregon operations to New Mexico facility. So we would end up expecting because of the move we were going to end up trying to keep that business reasonable stable.

But it will as it moves to Mexico and production launches in Mexico it will start to pick up, so yes, you’re correct there’s an easy comparable for it, which will be technically easy comparables going forward.

But we’re very diligent in the move process not to try to accelerate or overheat the business so we’ll be very diligent over the next two quarter until we get the 2016 in that product line, so that we are not interrupting or disturbing any customers and largely the launches that are occurring in that business have to be approved by regulatory bodies around the world, so that tense to be a little bit of a drag on accelerating the business because of the move and those regulatory approvals.

So as a pretty decent normalization level they use and then plans are with the new production capabilities and our New Mexico is to start accelerating business more significantly next year..

Okay. Thank you. And same question for vascular that one bounced around a lot, I know you’ve had recalls in the past and now those are behind you.

But because that line moves around so much over the last few quarters I wanted to ask you the same question, is that $13 million quarterly number kind of the right way to think about the back half for this year for vascular?.

It’s a good approximation that’s a little different story in vascular, because the move or traction [ph] at the beginning of 2016, but in general the end of life and the customer inventory management items that we’d experienced in the first half will update.

So there will be a slight recovery in vascular over the course of 2015 into 2016 mitigated by the move stabilization. But you’re correct as a smaller business of Greatbatch, the materiality of that and the overall company is fairly small..

Okay.

And then for Algovita sales in Europe so far I wondering if you could kind of give us approximation on how many units you sold over there or any characterize kind of the launch so far to give us a handle on how we should be thinking about that?.

I think the way you want to think about that Charles as we purposely launch in Europe is an opportunity to clinically assess the system in a controlled clinical environments that filled our infrastructure and team capabilities. We have not done a larger launch there.

It’s been primarily the test and protect the Algovita system itself which is it’s done as performed as we’d expected and we’re happy with it. But for us the prize is the PMA approval in the U.S. and the U.S.

market launch and leveraging of that system and indications beyond spinal cord stimulation which clearly will be done now at post spin by Nuvectra Corporation. So it’s been a limited clinical launch in Europe on purpose expressly collect information to prepare for the U.S. launch..

Okay. Fair enough. And my last question is on slide 21, of your presentation, I appreciate that you showed the chart here on the approximate time that when Craig-Hallum picked up coverage of your company. Thank you for that.

But the [Indiscernible] my question is on the bullet point for margin expansion under strategic initiatives, Mike I was wondering if you could kind of expand on that a little bit more, where do you going for when you think about strategic initiatives for margin expansion, just in terms of size and so forth, I mean is this – any kind of help there you could give us will be great?.

Well I think there’s a couple of drivers of our margin expansion that I’ll start with first. There is one that you note that in our other operating expenses a share we are spending money to build out those are Mexico and France operations.

We know that we will have margin expansions compared to the yields and cost structure that we had when were producing that in the U.S. So we believe that’s going to be a driver and we had historically talked about $70 million of improvement that will pick up once that those projects are completed on an annualized basis.

And as Tom indicated, they will come into the P&L based upon the pace that we can get approval for products with our customers and various regulatory agencies. So it’s kind of hard to say how fast that will come in, but it will improve our operations there.

The second piece that will drive our margin expansions just leveraging volume as we pick up in Portable Medical and other business orthopedics and neuromodulation of volume obviously that leverages your overhead and will help improve your margins also. We have said that we would like to consistently improve our return on invested capital.

We’ve been improving that return on invested capital anywhere from 15 to 100 basis points annually and we think we can sustain that type of improvement going forward over the next few years. And that’s going to be a key measurement for us is to make sure that the return on invested capital keeps improving..

Okay. That’s very helpful. Thank you..

Thank you. Our next question comes from Matt Mishan of KeyBanc. Your line is open..

Okay. Great, thank you. Just a couple of quick follow ups.

First, any updates or thoughts on go-to-market strategy for Algovita whether it be direct sales or through commercialization partner?.

No comments made other than that would be now the responsibility of Nuvectra management team and that – very shortly hear is part of the spin communications and road-show will be sharing their plans for that, but right now we are not sharing that information..

Okay. And then on – I mean you guys have made a lot of acquisitions over the last four or five years. You are also one of the few companies in the medical device industry that doesn’t exclude acquisition related amortization.

Get a sense of what that number is and what that would mean to EPS if you were to exclude that?.

On the top of my head I don’t know what that number is Matt but we’ll get it for you and [Indiscernible] put it up on that site..

All right. Thank you guys..

Thanks Matt..

Thank you. This concludes today’s question and answer session. I would like to turn the call back to Betsy Cowell for any closing remarks..

Thank you, Linda [ph]. I would like to remind you that both the audio portion of the call and the visual slide will be archived on our website www. greatbatch.com, and will also be accessible for the next 30 days. Thanks everyone for joining us, and have a great evening..

Thank you for your participation. That concludes today’s conference call..