Betsy Cowell - VP Finance and Treasurer Tom Hook - President and CEO Mike Dinkins - EVP and CFO.

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

Welcome everyone to the Third 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 information included in this conference call to reflect change assumptions, the occurrence of unanticipated events or changes in future operating results, financial conditions or prospects.

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

Hello everyone and thank you for joining us today for our third quarter 2015 earnings call. With us on the call are Thomas J. Hook, President and Chief Executive Officer, as well as Michael Dinkins, Executive Vice President and Chief Financial Officer.

As we have done in the past, we are including slide visuals to accompany this presentation, which you can access at our web site at www.greatbatch.com. Once Tom and Michael have completed their presentations, we will then open the call up for Q&A session. I am available to take further questions following that call.

Let me turn the call over to Tom Hook..

Thank you, Betsy, and good afternoon to everyone joining the call today. A few days ago, we achieved a significant milestone for Greatbatch, having successfully consummated the acquisition of Lake Region Medical.

We are now one of the largest medical device outsource manufacturers in the world, serving the cardiac, neuromodulation, orthopedics, vascular, advanced surgical and portable medical markets. Welcome to all our new associates to the company.

Our mission is to enhance the lives of patients worldwide, by being our customer's partner of choice for innovative medical technologies and services. Working together, we will provide innovative products into the markets we serve, which will certainly provide strong growth to our shareholders and associates.

Additionally, we will change the name of our company to Integer Holdings Corporation. Subject to shareholder approval at our annual shareholder meeting in 2016. We will provide innovative technologies to customers through our global Greatbatch Medical Electrochem and Lake Region medical brands.

These brands have strong recognition with our legacy partners to drive organic growth in our core business. The acquisition closed Tuesday, and we announced the new business and executive organizational structure during a two day integration meeting, with a new executive leadership team.

Lake Region Medical has strong finish to the third quarter with double digit adjusted EPS. The forecast for the remainder of the year, is in line with expectations. This transformative acquisition benefits all our stakeholders.

The combined company will have unmatched ability to serve customers and help patients worldwide be one of the large medical device outsource manufacturers in the industries we serve.

Our strategic imperative remains unchanged, executing our strategy for probable growth, and we are committed to making significant investments to integrate and optimize the combined company global operating footprint. We continue with a positive momentum for the spin-off of Nuvectra.

We successfully completed our pre-PMA inspection and anticipate approval in the fourth quarter 2015. As announced in July, Scott Drees will leave Nuvectra and Joe Miller will be the chair of the Nuvectra board. We expect this spin to occur shortly following premarket approval of Algovita.

We are confirming our revenue guidance that was previously announced in early October. Turning to the third quarter financial results, we remain optimistic about the future growth of Greatbatch. Our customer relationships remain strong, and we are positioned to achieve our revise 2015 revenue guidance.

However, for the third quarter, we were disappointed with our revenue performance which was below expectations and resulted in quarterly metrics [indiscernible] in the third quarter of 2014. For the third quarter of 2015, sales aggregated $146.6 million or a negative 13% on an organic constant currency basis.

Our disappointing results of adjusted diluted EPS for the quarter of $0.58, which is $0.17 below prior year Q3, was driven by lower revenue volume across most of our product lines.

Over the next few slides, I will discuss our revenue performance, and then Mike will provide additional comments explaining our adjusted EBITDA and adjusted EPS performance. We also want to point out that reconciliations of adjusted diluted EPS and adjusted EBITDA can be found in the tables included in our press release.

We will discuss revenue in more detail in the following slides. For the quarter, revenue totaled $146.6 million or a negative 13% on an organic constant currency comparison basis. We had several discrete factors impacting our financial performance in all product lines which I will explain over the next few slides.

We remain confident in our future, because of our deeply rooted customer relationships that remain unchanged during the quarter. Cardiac neuromodulation revenue was $72.8 million including inter-segment sales, declined 15% when compared to the third quarter 2014.

In the second quarter, we were closer than our customers to ensure inventory positions were adequate to facilitate summer holidays [indiscernible].

In the current quarter, we saw end-of-life products run-off at a higher pace than forecasted, which was further augmented by customers tightly managing their inventory levels and pushing some product launches into future quarters. Our success in neuromodulation continues and this is one of the key drivers of our fourth quarter performance.

We are confident in our ability to continue to deliver innovative technology to serve our customers now and in the future. Orthopedic product line sales of $27.8 million declined 7% on an organic constant currency basis, when compared to the same period in 2014.

When comparing the quarterly growth in 2015 with that of 2014, we were up against a tough comparable, because of 2014 customer launches of approximately $4 million. We expect orthopedics growth to be in the high single digits for the total year, and we also have several organic products and development for introduction in 2016.

Portable medical sales totaled $17.2 million, flat with third quarter 2014. Manufacturing transition to Mexico was on-track and initial production is slated for late in the fourth quarter.

Some customers are building safety stock for the product line transfers, and which will enhance our Q4 performance in [indiscernible] of first quarter 2016 performance. Vascular product line sales of $14.1 million were 5% below Q3 2014. As expected, end of life unfavorably impacted sales again this quarter.

Some new products we will introduce in early 2016. Our product line transfer to our Mexico operations, position us to be competitive in both new and existing markets. Energy and Military and environmental revenue of $12 million was 37% behind the same period of 2014. Principally attributed to the persistent energy market corrections.

In addition, we experienced a customer depleting inventory this quarter further dampening results. Our development program such as high range and high temperature batteries were on track, and we continue to receive favorable input from our customers, as Greatbatch innovates an area to improve our customers' efficiency and exploration.

I will now turn the call over to Michael, to cover financial results and 2015 guidance..

Thanks Tom and good afternoon everyone. My comments today will include our operating performance, balance sheet metrics and I will conclude with a discussion of 2015 guidance, which we are reconfirming. Before I begin, I want to take a moment to discuss our updated metrics.

Beginning third quarter 2015, Greatbatch will report adjusted diluted earnings per share, excluding amortization of intangible assets. This change aligns Greatbatch's metrics with other medical device companies. Secondly, adjusted EBITDA has been refined to exclude stock based compensation from this metric.

A table in the earnings release outlines GAAP EPS and EBITDA to adjusted diluted EPS and adjusted EBITDA, for both the quarter and year-to-date September. Turning to page 19, we have a summary of our financial results.

As Tom discussed, sales from the third quarter aggregated $146.6 million, and included $2.5 million negative impact from foreign currency exchange rate fluctuations, due to strengthening U.S. dollar versus the Euro as compared to 2014.

Growth margins expanded in the quarter to 35.2% driven by ongoing productivity programs, lower performance based compensation and to a lesser extent, favorable mix. Adjusted diluted EPS totaled $0.58, which is a drop $0.17 from the $0.75 reported adjusted diluted EPS in Q3 2014.

The decrease in revenues period-over-period, accounted for $0.19 of the reduced adjusted diluted EPS. Throughout the year, we have invested in two strategic areas, Nuvectra and product development. We also implemented various functional spending controls and lowered our performance based compensation.

The net result is a negative $0.02 impact on our adjusted diluted EPS. Tax results have a positive effect of $0.07 in the quarter. The quarter-to-date adjusted tax rate was 13.6%, driven by favorable results from various state and federal tax provisions and tax reserves associated with research and development tax credits.

Page 20 outlines key balance sheet metrics; both excessive EBITDA and return on invested capital, ROIC, fell below 2014 total year results due to lower operating income. With the projected fourth quarter, we believe we will be in line or slightly ahead of 2014 results.

Days sales outstanding improved five days on a comparable quarter-over-quarter basis, due to sales volume. We forecasted higher inventory to support the Q4 revenue increase and the product line transfers to Mexico. We expect inventory days will decrease to historical levels by the end of the year.

CapEx of $31.3 million through September 2015 reflects investments in our manufacturing facilities, principally Mexico and France. We forecast total year CapEx of $40 million to $50 million. Slide 21; we secured $1,760 million for the financing of Lake Region Medical, and is outlined on slide 21.

We have clear line of sites to the committed acquisition synergies and believe we are able to service our debt and delever the company to 3.5 to 3 leverage over the next two to three years. Turning to slide 23, we are confirming the guidance of $685 million to $695 million of revenue and adjusted dilutive EPS on the new basis of $2.96 to $3.06.

We believe we will be at the lower end of the adjusted diluted EPS guidance. This guidance does not include the impact of Lake Region Medical acquisition. At the end of 2015, we will include two months of results from the acquisition and associated interest expense.

We expect the adjusted diluted EPS for the year to be 5% to 10% dilutive, due to the incremental interest expense and approximately 5.1 million shares issued in connection with the transaction. However, we continue to expect the acquisition to be double-digit accretive in 2016.

Top conclude, we are confident in our ability as one of the largest outsourced medical device manufacturers. We will continue to create shareholder value by enhancing the lives of patients worldwide, by being our customer's partner of choice for innovative medical technologies and services.

I will now turn the call back over to the moderator, for questions..

[Operator Instructions]. And our first question comes from the line of Glenn Novarro from RBC Capital Markets. Your line is now open..

Hi, good afternoon guys. Tom, you talked about confidence that the CRM business would come back in the fourth quarter. But several of your customers have delayed orders because launches have been pushed out.

So what does it give you -- what gives you the confidence that these orders are going to come back in the fourth quarter? Given that there may -- with your customers, still the uncertainty in the first half and next year, as to when these products launch? Thanks..

Certainly Glen. For the fourth quarter 2015, we just got better visibility for our project launches, because the customers have churned in orders and the deliveries are scheduled in the current quarter for those launches. So we are already in manufacturing, building those products, to support their launches.

However, to your point, launches that were originally planned on Q3, we need to be careful that all those launches weren't just moved to Q4, some were moved to 2016 as you are referencing. It's also important to note, that because -- in our cardio [indiscernible] management also includes neuromodulation for our revenue results.

We are on a significant ramp and partnership with Nevro commercialization and that will be obviously driving success with regards to fulfillment of their requirements to their launch of plans.

So the combination of those launches, both in cardiac rhythm management and neuro are timed for the fourth quarter, but there are some that have gone into the 2016 and we plan for that quarterly..

Just as a follow-up, for the orders that you just received and that you plan on delivering this quarter, is there any way that the customer can cancel at the last minute, or these orders are in place, they are going to be delivered, and that's why you are feeling so confident?.

I think there is always an opportunity for us to work with customers and the timing of deliveries for launches. But I would say that launches are very regulatory driven, and they normally ramp their productions, based on the predicted dates of those approvals.

Because we do maintain inventories, finished goods inventory between us and our customers, they do have the ability to plan for unplanned inventory changes, that we don't see that in false coordination with our customers based on our year end, which is very typical of us traditionally.

So we don't see those effects at this time, but I mean, obviously, anything is possible, but I think it’s a very low probability..

Okay, great. And then just one last question, the energy piece now is so much smaller part of the company; is this a piece that you would think about divesting, is it even possible to divest in this end market? But just curious as to how energy now fits into the strategy? Thanks..

I think our Electrochem branded business, which is mission critical batteries for full industrial as well as few medical applications, has been a good growth business for us historically. But you are correct, the energy markets are undergoing a lot of pressure right now, which has retracted that business.

Technologically being experts in the battery business across medical and industrial areas, we have got a commitment to continue that battery technology. We do cross-pollinate the technology between our medical and industrial areas of the business, and also from a quality systems perspective.

So we see great leverage across those two battery franchises, and we have no plan to actively -- to go out and see the divestiture of Electrochem.

We plan on leveraging that capability in energy transmission, both for the medical brands, and in particular, in portable medical, power applications, and we also see a great future for the leveraging of that technology and engineering capability for wireless energy transmissions for our partnership with [indiscernible] in the future.

So no plans for that, only plans for leverage, the technology across medical and non-medical brands..

Okay, great. Thanks Tom..

And our next question comes from the line of Matt Mishan from KeyBanc. Your line is now open..

Yeah, it is Mishan. We got that right. Afternoon guys..

Hey Matt..

I was hoping you could help me a little bit with my model. I mean, we are obviously going to try and combine the two companies and put out a 2016 number and then a 2017 number combined.

What do you -- I was just hoping for a little bit of a base, what do you expect for full year of Lake Region Medical sales and EBITDA for 2015? In other word, about 10 months in?.

For 2015 you said?.

Yeah, for this year..

Yeah, their revenues would be between $800 million and $805 million and we expect the EBITDA would be around $150 million..

Okay. Thank you, that's helpful.

And what do you think full year free cash flow can be for the combined company going forward? I think, obviously with the leverage, it seems like that will be pretty important?.

We are in the process of working on our 2016 budget and those type of plans. If we perform around historical levels, then we should be able to generate free cash flow in the $150 million, $170 million kind of range..

And would you prioritize -- debt reduction over additional M&As, is that the first use of cash at this point?.

Yes..

Yes. We have no plans for additional M&A in 2016. Our focus is to integrate and drive synergies to the Lake Regional Medical acquisition and that's our primary focus, to drive that core business and integration going forward, and to delever it, using our free cash flow..

Okay.

And then moving on to CRM, I was just hoping you could help me understand what has changed with how some of your customers are managing their inventory? And then also, why end of life programs are impactful for -- just an extended period of time?.

With regards -- I will kind of do the inventory question first, and then move on to end of life. First, on inventory management, we contractually maintain the customer's inventory levels to support their operations as well as risk management.

At any period of time, customers can't actively manage the level of inventories to be contractually held or they hold, and rely on lower levels of inventory, based on their sales going down or their risk plans based on our performance, which has been extremely good. Being at a level that allows them to have less inventory in the channel.

When they make those changes, that tends to have a one time effect to us on those inventory changes, because they tend to go down based on our strong performance, and its really only when a launch would occur, where inventory would flow back into the system and would elevate that level of inventory between us and our end customers.

So we haven't won any new business or lost any new business, with regards to this. Its just purely, from a safety stock, we desire as a whole in the channel between us and them, and it varies extensively by product line, but it can be a material amount of money, as we have seen some of that affect in Q3, due to a reduction of those inventory levels.

The second question that you had was with regards to end of life, and as we have messaged throughout 2015, we have predicted that as a couple of end of life projects that have been happening at the same time, which is unusual, and the simultaneous nature of those occurring, at the same time of several launches occurring, the timing of those are a little offset.

The end of lifes come in earlier than we had anticipated, and the project launches for the new product introductions had come later than anticipated, and has left us with a gap.

These are unrelated product lines, in one case, unrelated customers, its just a timing of those phase outs of the technology and the commercial launches of those new products has just been displaced.

So while we have done a great job of planning through research development and product development, the changeover of those product lines are manufacturing plants, the customer's demands, and their end approvals to pull on those launches have been pushed out and it creates a gap for us.

But based on those approvals, having been received and the launch is now ongoing, we are confident that these price introductions will ramp in Q4, into 2016, and the end of life effect that we have seen in 2015, will subside as we get to the end of the year and we move into 2016, those end of life effects that happen quarter-over-quarter will go away now, so the year-over-year comparisons will be on a more trued-up basis..

Okay. That was very helpful. Thank you very much..

And our next question comes from the line of Charles Haff from Craig-Hallum. Your line is now open..

Hi. Thanks for taking my questions. I had a question regarding Nuvectra. Congratulations on the pre-PMA inspection being completed.

I was wondering if there are any outstanding items, or were there any comments, anything, preventing or that you need to respond to, before the ultimate approval?.

Not at this time Charles. First of all, we know it’s a big event. It has been two years in the making since the submission to get to the point of being [indiscernible], passing the PMA inspection. So we are very excited about that.

As you know, we have already received an approvable letter from the [indiscernible] valuation for Algovita, so it was subject to the passing of that inspection, which we have done. Now, we end up having to wait for that process to finish for the formal completed approval.

There are some administrative steps, but they are more administrative in nature, that have to completed to get to the formal approval, and we will work in conjunction with the FDA to get those.

So we don't see any roadblocks and that we are anticipating the timing of this to be in the next several months before the end of the year, and the Board of Directors will be deliberating and finalizing a spin-out of Nuvectra, post that PMA approval..

Okay, great. And congratulations for that..

Thank you..

On portable medical, as you mentioned, you expect 4Q to be strong and first quarter to be weak due to the stocking.

I wonder if you could kind of quantify, what level of stocking you would expect? Is it going to be around the $3 million to $4 million range or any help there you can give us?.

Yeah I think what you are going to see from an effect, Charles, is about $5 million and it literally is just last time production in Beaverton operations, that they would source from that and accept shipping on; and then we would startup formally in a qualified status, the new Mexico facility and start ramping production there.

So it results in about a $5 million delta from your modeling perspective..

Okay, great. Thanks for that. And then on cardio on neuro, your comment in the press release expecting significant improvement. You had a very easy year-over-year comparison there in the fourth quarter with negative 19%, fourth quarter 14%. So significant improvement, you can kind of drive a truck through that.

But how should we kind of think about that? $69 million in the fourth quarter of 2014 and $72 million or $73 million this quarter? Any more specifics that you can give us, 20% growth, 25%, how should we think about this?.

Well I think, Charles, if you look at what our guidance for the total year that we have provided and the revenue basis, and then you see, where we have given some additional information on the vascular, orthopedic markets, you can derive where cardiac and neurology is going to come.

Its very neuro driven, but also we see the inventory effects from cardio rhythm management do not reoccur. So from an overall number standpoint, we are not going to provide the specific item, just -- or that one product line.

But if you look and just extend the performance that you had in the other areas, you will be able to drive it quite easily, and I think based on that, is what you will find is -- is that it just is significantly improves in the fourth quarter, to be able to deliver around the revenue guidance range that we provided for the overall company..

Okay. And on military and other, historically last couple of years, you have had a nice uptick in the fourth quarter of maybe $1 million or $2 million versus the third quarter.

Are you expecting that again in 2015?.

I think we will see, from an energy, military environmental standpoint, better performance in the fourth quarter, simply because the customer inventory rationalization that's occurring is -- we are already absorbing the lower [indiscernible] in those markets.

But in the third quarter, we also absorbed a inventory reduction for customers that wanted to rationalize their inventories out. That rationalization of inventory is not planned to occur. The limited opportunities it had to occur in the fourth quarter. So based on that, there would be recovery in the fourth quarter back to normalized patterns.

If you would just have, you won't have that inventory effect that we experienced in Q3..

Okay. Thanks. I have some Lake Region questions, but I will hop back in the queue..

And our next question comes from the line of Jim Sidoti from Sidoti and Company. Your line is now open..

Good afternoon, can you hear me?.

Certainly Jim..

Yes..

Great.

I just want to confirm, based on the presentation, it looks like the blended interest rates at $1.9 billion will be between 5% and 6%, is that correct?.

Yes it is..

Right.

And can you tell me what Lake Region sales were for the first 10 months of the year?.

For the first 10 months of the year?.

Well, at the time you closed the acquisition?.

Yeah, I don't have. We are looking it up right now. We will post that for you..

Okay. And I just wanted to --.

A little over $600 million..

Okay.

So you are expecting a $200 million the fourth quarter from Lake Region?.

No, that's nine months. I am sorry..

We don't have 10 months..

We don't have it for another week or so..

You're expecting -- all right, somewhere around $150 million or so for those two months?.

Basically, we will expect for the last quarter in the year, right in that $200 million range..

Right. Okay, and when you say that you are expecting guidance, are you expecting the acquisition to be double digit accretive.

Is that accretive from where you would have been for 2016, had you not done the acquisition?.

Yes it is..

And at this point, in 2016, it looks like it would have been in line with historical growth rates?.

We are going to say, it [indiscernible].

Our 2016, Greatbatch?.

Right. The base number..

Yeah, they are similar to historical performances..

Okay. All right. Thank you..

And our next question comes from again Matt Mishan from KeyBanc. Your line is now open..

Thank you very much. I just had a couple of follow-ups. First on the CRM; I know you guys don't like to talk about, which platforms you are on or a little bit of content. But it just seems like some of the problems around delays in MRI-safe devices.

How should we think about your exposure there, and do you think you have more or less content on those devices than you would have on -- like non-MRI safe devices?.

We think we had content across the product portfolio of customers consistent with historical patterns. The one exception would be just one end of life technology that is no longer used and the device for the customer that we are selling them to.

But whether those are MRI or non-MRI, we remain consistent to historical patterns and cardio rhythm management.

One of the significant differences for us going forward in the cardiac rhythm management neuromodulation revenue line is going to be the effect of the emerging neuromodulation sales, especially as we move into the fourth quarter and also into 2016 and into the future.

And we expect only to enhance this [ph] post the spin out of Nuvectra as they are moving to their commercial launch phase..

Okay. And then the fourth quarter implied in your guidance is -- and this should be excluding Lake Region, would be a significant sequential jump in operating margins? I am thinking its kind of mid-to-high teens.

What gives you the confidence that you can get to that level; because I don't think you have ever been there before?.

Is it primarily leverage and volume, but once you get above a certain volume, its falling to the bottom line at a pretty good rate..

I think additionally, the other effect would be mix, [indiscernible], as we re recovering in the cardiac rhythm management neuromodulation line, based on the product launches we had there.

We had a very healthy margin for us, and that ends up driving the ability to get higher levels of operating margin, and we expect also with the spinout of Nuvectra in 2016, we will be able to continue to expand that operating margin, based on the nature of the spin and research, development and engineering expenses, that we [technical difficulty]..

And to a smaller degree, the startup of production in Mexico is obviously at a better margin than it was at the plants that we were shutting down..

Okay. Thank you.

And then this last question, can you help me walk through the math on the 5% to 10% dilution in the last -- with two months of sales coming in from Lake Region?.

We can post something that will give you a walk on that, rather than trying to do that now. But it’s a combination that they are profitable. But we will -- interest expense we will incur additional interest expense for the debt in general -- incur additional interest expense for unwinding some hedges and other things that are going on.

And then last but not least, issuing the 5.1 million shares, that causes the dilution in the fourth quarter. When you do that for the total year, we have time to cover the 5.1 million shares..

Okay, got it. Thank you..

And our next question comes from the line of Charles Haff from Craig-Hallum. Your line is now open..

Hi, thanks for taking my follow-up questions.

So I am wondering if you could share with us, how the reported revenue segments may look in your presentation in the fourth quarter? Will you be spiking out Lake Region separately, or will you be blending it in with Greatbatch?.

We are examining the GAAP guidance on that, and we will be making the recommendation to our Board of Directors at our meeting in December, and when they start reporting at that time. So at this time, I don't have any answer for you..

Okay.

But will you help us as we are moving forward for the next few quarters, showing us the separation between the Lake Region and legacy Greatbatch, or is it too early to say?.

Well as you know, we had to file the historical pro formas on Lake Region, 71 days after this transaction closed on early part in 2016, we will be making that filing and that will give you some historical -- three year historical Lake Region data. And then the methodology of how we provide that data going forward, we are still working on.

But we are very cognizant of the fact that, our shareholders need to be able to understand what's going on with the business, and we will do it in a fashion that should be informative, and allow us to communicate what's going on with our company..

Okay, thanks Mike. And then my last question is more qualitative.

Now that you have been looking at Lake Region for a little while now and looking under the hood, I am just wondering what new things that you found, as you do your due diligence?.

Certainly. While we are ecstatic to be picking up a tremendous company and exceptional operating management, clearly from what we communicated, with regards to our combined executive team, there is a blend of both Greatbatch as well as Lake Region medical management and the new combined executive team.

They are as good as we have historically been, if not better in the manufacturing areas and technology we see very complementary to our overall product portfolio. And additionally, we see our ability to serve our current customers very comprehensively. Also, we are very confident now from the synergy and integration plant perspective.

We had a clear path to merge the companies together, merge the cultures and also squeeze out synergies of the deal, so I think we are retiring a lot of question marks that we've had, and what are finding is, a lot of good news and a lot of good performance, that gives us lot of confidence that will leverage the two companies going forward.

And we are off to a very quick start, we have been doing the synergy planning for the last several months, and we have been doing the integration planning for the past several months.

So we have a headstart upon the deal closing on Tuesday, we have spent the week planning out the rollout of both the integration of the synergy, planning to take advantage of that across the combined organization and so we are off to a solid and quick start too. So only good news, Charles..

I would also say, we've started a platform of information technology tools and capabilities that are quite well done and very leverageable. So that the integration process is going to go faster, and I think also, yield and end results that we are going to be very pleased with.

So we will [indiscernible] the information technology platform and tools that we are very pleased with..

Okay. And just following up on that comment you made, Tom, about superior manufacturing and technology, in some cases, with Lake Region Medical versus legacy Greatbatch. There is considerable margin difference between the two, about 18% for Lake Region on adjusted EBITDA and 24% or so for Greatbatch.

So I am just wondering, with the superior manufacturing and technology pieces that Lake Region has, is it just a mix issue that gives Greatbatch the higher adjusted EBITDA margins with exposure in CRM and neuro, or is there something else that maybe explains those dramatic margin differences?.

I think its probably clear, as someone pointed out, as we have done our communications on this transaction that our views on intellectual property around the products and process are different.

From a historical perspective, Greatbatch, over the past decade in particular, has done a lot of development of innovative core technologies at the discrete product and materials level. We have integrated that in the systems, and we are enjoying the fruits of those labor.

In addition, we have been very aggressive at costs out across our manufacturing base in particular to invest in large scale manufacturing consolidation. The combination of all that investment, that the shareholders and our Board of Directors have supported, has allowed us to drive margin of cash flows that are higher.

But frankly, that's what we see the investment opportunities that we see in Lake Region, going forward, to invest that capital and to be able to drive those synergies and our integration plans to bring up those margins and serve our customers more comprehensively by driving values to them as well.

So we see that that execution model, [indiscernible] renovation and investment has been quite successful for us over the past 12 years, and we know through our partnerships with the Lake Region managers that we have been working with, they also see that same opportunity out there with the investments we plan on making in the synergy plans.

And that's how we are going to walk that map to get through the [indiscernible]..

Great. That's very helpful. Thanks Tom. Good luck..

Thanks..

And our next question comes from the line of Greg Chodaczek from CRT Capital. Your line is now open..

Thank you very much. First of all, like everyone said, congratulations on the FDA inspection. I know it has been a long time coming for most, probably more for you guys than us..

Thank you..

In terms of Lake Region medical synergies, a lot of questions have already been asked, but a few months back, you talked about certain amount of synergies, dollar-wise.

Are you more comfortable, less comfortable, now that you have seen the business for another two months, can you speak about?.

I think we are more comfortable, because we have more information and we have retired more questions, Greg, is simply -- we have committed to providing synergies in year one of $25 million, and by year three, $60 million on an annualized basis, to -- because we obviously know, there is a funnel of opportunities there, that are greater than $25 million and $50 million, we are going to be working in along with potential synergies to make sure we can produce those commitments.

But now that we have received any drug approval, the deal is closed. We have the active involvement of both management teams on a completely unrestricted basis. We very rapidly retired a lot of risks and are able to share data on an unrestricted basis, and our confidence level is only higher, post the close of the deal.

And I would think with the two months of kind of headstart that we have to get going in advance of 2016, that's a significant leverage point that we will be able to get into 2016, and with a very aggressive basis and use the next couple of months to get ahead of the curve we set forward. So I am very confident..

Excellent.

And in terms of the cardiovascular business, now that you are combined, are there large customers that you did not have, that Lake Region Medical had for that segment of that business?.

That's an excellent question, and just as a reminder, Greatbatch and Lake Region had very little product line, customer overlap, so our technologies in the transaction are extremely complementary.

There are customers that are similar, but we have just been selling them different products, and we have discovered very quickly, there are individual discrete technologies we are selling to customers for applications in which we are doing different pieces of that for the same company.

So we are very rapidly, getting aligned around our customer engagements to provide them more comprehensive offerings. So that's going to present some really nice opportunities for us to serve our customers on a more comprehensive basis, which we are pretty excited about.

And really until a week ago, we have not been able to share that data with antitrust, so we have learned quite a bit in the past week with regards to how deep our partnerships go with companies, and just how far we can leverage that into new areas, where we haven't enjoyed business before..

All right. And that's kind of where I am going with this comp; the synergies you talked about were expensive synergies, I am assuming. And I am also assuming, just like hospitals and what [ph] from the end customers.

You guys now can use bundled pricing almost to get more out of these accounts that you have?.

I think is -- you're correct.

Is that all of the synergies we are committing to are cost synergies, and we specifically said, that while the strategy of Lake Region and Greatbatch coming together is to drive the long term revenue synergies with more comprehensive offerings to our customers, we are counting on none of those synergies in terms of our guidance, with regards to profitability for the deal.

The reason why it is simple, is because while we readily see these opportunities immediately as actionable, in 2016, we know that because regulatory approvals can take several years, as we have just experienced with projects like Algovita, we know those synergies largely will come out in the years four and five.

So we've specifically not provided any guidance or color with regards to that.

However, that is the underlying strategy or the rationale for the Lake Region Medical and Greatbatch combination, is to cap those comprehensive offerings and being a more holistic provider into customers in the medical device outsourcing industry, because that is where the real leverage comes in this transaction, is to be able to do more for our customers in all levels of their business, to drive their business faster..

And last but not least, I know orthopedics, as a percentage of revenue is going to go down, now with the combined companies.

But as you look out in the orthopedic business, are you receiving any pressure from your end customers based on what Medicare is doing, we are changing with reimbursements in terms of knees and hips? I will stop at that?.

Certainly. We received unending price pressure from our customers across all product lines and we work very actively with them to partner on how to drive price productivity for them, based on continuous improvement projects, which we are very successful, both in Greatbatch and Lake Region to do.

I will be very careful, that Lake Region Medical also has a very successful orthopedic product line that they run in our surgical business, and it’s -- while that is more focused on areas other than the hip and the shoulder, where Greatbatch has been traditionally strong, a combination of our orthopedic product category of the combined companies, will still be very significant and somewhat consistent with where we are today within Greatbatch.

We will provide those breakdowns in the future, on a more specific basis. Its just that, Lake Region traditionally has been in different areas of recon and spine than Greatbatch has been focused on, and we'd have to reframe our combined orthopedics business in the future, to provide more clarity on how comprehensive we are.

But again, because orthopedic customers tend to be multi-modality within orthopedics, we see that as a great leverage point, and we expect -- while those comprehensive relationships provide us business uptick opportunities, undoubtedly, the nature of those negotiations and transactions will also provide price pressure for customers, as it inevitably does with any customer..

Thank you, Tom, and congratulations again..

Thank you..

And our next question comes from the line of Glen Novarro from RBC Capital Markets. Your line is now open..

Hi. I had a follow-up on Nuvectra. So you will go to the Board towards the end of the year to get approval on the spin. Is the key to the board approving the spin -- does it come down to valuation? And what if the board does not agree with the valuation? In other words, is there a chance that the Board does not approve the Nuvectra spin? Thanks..

Certainly Glen. I think that we have been clear that the key events for the Board has been waiting for, with regards to the Nuvectra spin, the PMA approval and Algovita. We have been very diligent, since the announcement of the intention to evaluate the spin at the beginning of the year. The Board has formed a special committee to review this.

The Board has engaged an investment bank, provide guidance with regards to the valuation of this. The work has continued very smoothly. We have hired a lot of the concerns that you have referenced.

And while the spin has not been finalized or formalized in terms of its approval, we don't see those being impediments to the spin occurring, based on the work that has been, which has been very thorough.

I mean, while there is some administrative work left, the last major milestone that was really going to be determining the timing and the final approval by the Board, would be the actual PMA grant for Algovita, and then expect this program to occur shortly thereafter..

So with the timing of the spin then, the -- you think it will fall into January versus the end of this year?.

We have to make -- obviously with the timing of -- we can't control the timing of when the FDA provides that notification to us based on that, as long as it isn't going to compete with holidays, we would have to just avoid that potential for occurrence. Just a question of following the typical spin-out timeline that any company would have.

But having prepared for this, over the course of the year, we think that could be in a matter of weeks, based on the PMA approval being granted. So we think that timeframe is fairly short, but we wouldn't do it over a holiday period, we avoid that, if that became a conflict..

Okay, great. Thanks Tom..

Welcome..

And that concludes today's question-and-answer session. I would like to turn the call back over to Betsy Cowell for any closing remarks..

Thank you, Rhona. I would like to remind all of you, that our calls today, that both the audio portion of this call as well as the slide visuals will be archived on our web site and will also be accessible for the next 30 days. Thank you everyone for joining, and have a good evening..

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