Welcome everyone to the Fourth 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 obligations to 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 now like to turn the call over to today’s host, Vice President of Finance and Treasurer, Betsy Cowell. Please proceed.

Hello, everyone and thank you for joining us today for our fourth quarter 2014 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 the presentation which you can access on our website at www.greatbatch.com. Once Tom and Michael have completed their presentation we will then open up for Q&A session. Both Michael are I available to take further questions following the call. 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. We are very pleased with our operating results for the year. For the second year in a row, we have exceeded our commitment to return two times our revenue growth to the bottom line. On the top line, we had record revenues of $688 million, recognizing double-digit growth in orthopaedics and vascular, and mid-single-digit growth rates in energy, military, and environmental. Our adjusted operating margins expanded 80 basis points to 13.3%, reflecting our sustained productivity and cost control efforts. Michael will provide additional information about our lower taxes. We believe we will continue to benefit from a lower overall effective tax rate into 2015 and beyond. We were able to increase our adjusted diluted earnings per share by over 15% this year while driving key strategic objectives of growing our intellectual property portfolio with a 134 new patents, positioning Algovita for FDA approval in the first half of 2015, executing our strategy to become a leading manufacturer in the growing neuromodulation market, and positioning us for continued margin expansion by building our new facility in Mexico. We are confirming our 2015 guidance. There are a lot of numbers in slide six, but at the bottom is the key measurement; operating cash flow of $81.3 million and ROIC improvement of 50 basis points to 8.4% for 2014. As you can see across all of our metrics, we showed improvement. Most importantly, we made the investments to continue our success. We expect 2015 to be a transformative year and remain confident in our strategy of leveraging our broad intellectual property portfolio and manufacturing excellence into the growing neuromodulation markets. Algovita U.S. regulatory approval was on track as is EU commercialization. Our CCC Medical Devices acquisition has…

Thanks Tom and good afternoon everyone. I am very pleased to be on the call today to provide an overview of our 2014 performance. I am going to cover a few slides and refer everyone to our press release we issued earlier today for more details regarding our financial performance. We will discuss fourth quarter and conclude with the total year. Slide 14 shows the key fourth quarter metrics. As Tom previously discussed, the drivers for the decline of 3.9% in revenue, I will focus on how we were able to improve our operating metrics with double-digit increases in adjusted operating income, adjusted net income, adjusted EPS, and EBITDA which resulted in a 100 basis point improvement and return on invested capital. Let’s turn to slide 15 where we have outlined the drivers of our performance improvements. RD&E spending netted to a $0.12 improvement for the quarter. This decrease was primarily a result of lower costs incurred in connection with the development of our Algovita Spinal Cord Stimulation system. Additionally, this decrease was due to a $1.9 million increase in customer cost reimbursements compared to prior year due to the timing of achievements of milestones on various projects. Normal operating expenses lowered adjusted diluted EPS by $0.02 because of the acquisition of CCC Medical. Below adjusted operating margin, notable improvements include lower interest expense associated with our lower debt and foreign exchange gains associated with our euro denominated payables. Tax rate for the quarter was higher than the fourth quarter 2013 because in 2013 we realized a favorable foreign tax rate change. Adjusted tax rates were 23.6% and 21.3% for Q4 2014 and Q4 2013 respectively. During the quarter, fully diluted shares outstanding increased another 2%, negatively impacting adjusted EPS by $0.02. On slide 16 we have our total year…

[Operator Instructions]. The first question comes from the line of Matt Mishan with KeyBanc. Please proceed.

Hey, good afternoon. Thank you for taking my questions. I think just on the inventory issues, can you just clarify, is this a customer issue or is this customers, because I couldn’t tell, in the press release you kind of indicated there was one customer, but I think you guys indicated that your customers were kind of managing their inventory aggressively?

Yeah, Matt, good question. I think in that, all of our customer agreements have confidentiality provisions. We can’t divulge a lot of details, but I would say just in general those customers are more tightly managing their inventory, which is always a balance, because in most cases as a sole source technology developer and manufacturer for them, they require us contractually to have levels of safety stock on what is in our inventory to protect them against any potential disaster that could affect us, but as they have inventory on their end and they choose to tighten that up, it does affect the sales flow of us to them, and as we hit the year-end or quarter-end points, they are much more active in managing that, and that’s where the source of the effect comes from. We are not losing any business, we are not doing any less development. They are just managing their inventory tighter and taking fewer pools from us. But as you know historically following us because those pools can typically be very large in size, multiple millions of dollars it is very easy decision for them to not pool and it would have a considerable effect on our ability to grow revenues, and that’s exactly what’s happened at the end of 2014.

Okay, so as I think about like the timing of impact of the CRM, is it kind of right to think that the first quarter will be like the last impact from some of legacy programs coming off. You kind of finish up on the inventory overhang and then that’s also going to be your toughest comp of the year?

I think Q1 will definitely be our toughest comp, but end-of-life as we highlighted was a second-half ’14 event which largely has washed through, but because of the year-over-year comparisons, it would be the first two quarters of ’15 that, that would be in effect and then it would be levelized from there.

Then on energy and other, what are the assumptions that you are using and that’s implied in your guidance for energy and other for the year?

That is an excellent question. As you know that there is a lot of dynamics going on in the energy markets right now as we all can see and we are linking very closely with our customers, we have taken the best thinking we have in providing our overall guidance, and it’s incorporating what I would feel is a lower price per barrel of oil and then knock down effect to the oil and services companies, which are our customers. And so, while we grew that quite aggressively in 2014, we are expecting that, that is going to be a tougher end market because the price of oil and the price of gas continues to be very low, which will have effect on drilling and hence on the usage of our products. So, we’ve factored that in to the guidance ranges that we’ve provided, but we are not going to -- it’s tough for us I think to give a lot of more specifics on that since it’s a pretty dynamic situation, but we have been in contact with all of our large customers and even the smaller ones and we have what their thinking is for 2015, and we have incorporated it in our plans and our guidance.

Okay, and then last question from me then I will jump back in the queue. You had about six months of Algovita in Europe right now, since it’s approved at least. Can you give us an update on kind of whether or not you have been testing the device, how it’s doing and what’s going on over there?

I can only say we are not going to provide any detailed information until we get to an Investor Day event for Algovita, which would be, we project to be mid-yearish based on when we think we are going to get FDA approval in the first half, we will provide more details then. But we are encouraged and very satisfied and we look forward to sharing more details and we are retiring milestones everyday, both on the regulatory side for U.S. approval as well as the clinical evaluations that we are doing in Europe and we are quite satisfied.

Okay, thank you very much guys.

The next question comes from the line of Charles Haff with Craig-Hallum. Please proceed.

Hi, thanks for taking my questions today. Michael, I was wondering on the tax rate, I think you said about a month ago that you are expecting 27.5%, and now you are looking for, is it 26%? Is that the right number to use compared to the 27.5% you were using before? And if so what are the reasons for the decrease?

The answer is yes and yes. We do think we will be closer to 26% on the adjusted tax basis, and the reason for the decrease is that we are having a higher percent of our income at the lower tax rate, which reflects the fact that the orthopaedics and other lines of business are doing quite well, also takes into consideration that we, with the CCC Medical at 25% tax rate, they also mix us down and we are optimistic about that business and their performance in 2015 also.

Okay, thanks. And you made a comment about high single-digit revenue growth in the first quarter of ’15, which line item was that, I think I missed the detail there?

We, I shall correct you, we are thinking about high single-digit decline and organic growth in 2015. The first quarter as Tom indicated will be a tough quarter for us because; one, in 2014 we posted 17% organic growth that quarter, so it’s a very tough base for us, and as Tom indicated we will be impacted, continue to be impacted on the year-over-year comparison by end-of-life through the first and second quarter, and we are optimistic about new product introductions that will allow us to stick with our guidance for the total year, but they will build starting in the second quarter, build greater momentum throughout the year.

Okay, that makes a lot of sense thanks. And then increasing CapEx about 40% to 80% year-over-year to a level of 35% to 45%. Can you kind of explain what the delta is the additional $10 million to $20 million versus 2014?

It primarily reflects to building out the second production facility in Mexico. That is the primary driver and then we also anticipate some expenditures to grow our CCC Medical business but it’s predominantly the projects coming to end-of-life and as you know a lot of that you park on the balance sheet that when you put in production it shows up as CapEx. So that indicates the late 2015 startup of our new facilities.

Okay, great. And my last question is in portable medical. I know that you’ve been moving some product down to TJ, you have been phasing out some unprofitable business, what are some of the updated puts and takes that you see there and how should we think about portable medical growth in 2015?

Yes, Charles, great questions, it’s Tom Hook, think -- think of it this way, number one we have taken the business that was unprofitable and we phased that out and terminated it. So we are not going to move that business. There is no business that has moved yet from our Beaverton, Oregon operations down to our New Mexico facility because the New Mexico has not finished construction, nor is it qualified. In parallel with qualifying over the next several quarters a lot of the product lines which we will ultimately move in the second half of this year to the Mexico facility to finish that at the end of the year and bring it online, we are in parallel have been regenerating the portfolio, which is representative of some of the 18 products I referenced in my comments, in parallel with that move. In other words we are selling and developing and generating proposals based on having operations in Mexico next year which has led to a refresh and a replenishment of the business that we would not have to quote move. We would just originate that from our new Mexico facility. So we are very good at these moves as you know from history and we’ve done this before to great success. So we are doing Phase 1 which is unprofitable products have been eliminated and phased out, which has led to our revenue decline but somewhat paradoxically a profitability improvement because we are eliminating non-profitable products, we don’t want to move to the new facility, Phase 2 and 3 are in parallel, the facilities under construction and qualification and we are winning and have won a dozen and half deals that will originate in that facility that won’t be moved. And by the end of the year obviously all the product lines upon qualification and customer approvals will be sourced out of the New Mexico facility. So all that happens in parallel for the year. It gives us -- obviously builds momentum throughout the course of the year and then give us a healthy start to 2016 both in the top line as well as in bottom line profitability contribution from portable medical in the New Year.

Okay. Yes, I understand there are a lot of moving parts there and I appreciate that you don't want to be too specific with guidance but on the portable medical line should we be thinking about kind of low single digits or mid-single digits or high single digits, any help you can give us there would be appreciated?

I think the best way to think about it is we like to stabilize that business and keep it stable and flat during this transition period. So that's what our plans are for the year, that’s incorporated in our thinking. And we're going to go through this lull like we did in orthopaedics several years ago during the move we had there and we expect to come out of it with healthy growth rates after the move has been completed. So you should expect stability followed by growth pattern indicative, that we had in ortho as we bring the new plant online next year.

Okay. That sounds great. Thank you very much.

[Operator Instructions]. The next question comes from the line of Gregory Macasko, [ph] Montreal. Please proceed.

Yes, thank you. Just a couple of questions, there were a number of questions around inventory and I wondered with regard to the balance right now, and you mentioned the fact that there has been some large changes because of safety stock and the like. If we looked at the history is it fair to say that we could see some large pushes out to the customer over the next few quarters to maybe push sales up just in the same way there was a negative hit in the past?

Greg, Tom Hook, thanks for the question. And I think what we've seen over the past year has been that customers are relying on the relationship they have with us and our safety stock as the primary means for inventory and that the inventory level they are managing on their end, they're going to manage it much tighter in that process. So I don't expect that they would, based on how they're improving their ability to manage their inventory across their balance sheet, I wouldn't expect that they would draw from our safety stock and replenish those large pools. Now with that said it has happened before but it is not our expectations that going forward, given that cardiac rhythm management growth rates are stabilized and more predictable and we don't see large pervasions within the business, so we wouldn't expect that they would take a huge unplanned pool and since we were in constant strategic and tactical communication with them we've got pretty good confidence that the guidance we've provided does not incorporate that thinking and we're not planting on it.

Okay, good. And then with regard to the change in lower margin product that you've had, what effect has that had on the sales growth over the past year and is that pretty much complete at this point?

The portable medical products that were unsatisfactory profitability, even if moved to an integrated facility in our new Mexico facility would not have come to a satisfactory level of profitability and our ability to put in our information technology systems into acquired companies to understand cost on an SKU basis allow us to see which product lines are profitable and which ones are not. So that project that was done in 2012 targeted the product lines we wanted to trim before the move and the net effect of that is while lowering revenues it results in us reallocating our engineers and production talent on the projects that produced incremental margins and obviously revenue growth that has higher quality. So while painful to do it, it's productive to do this because it's very expensive to move these product lines only to find out that you can make money at them after investing more money and we have learned that lesson the hard way by moving unprofitable product lines in some instances historically and it’s only resulted us in a new location having to terminate them. So and through a lot of experience we have learned that swallow the medicine now is better. We separately should shift with the customers on product lines we are better configured to make and that’s exactly what we have done with the customers involved here and it’s actually strengthen the relationship by taking that approach.

But just to summarize that’s pretty much done and so…

That’s done.

That’s finished, okay, good, thanks very much.

Welcome.

The next question comes from the line of Matt Mishan with KeyBanc. Please proceed.

Okay, great. Hey, I do not want to get too much into the weeds here but the loss for QiG group on the operating segment came down and I just was curious if that’s a good run rate going forward and also corresponding the corporate other loss, unallocated corporate cost did go up, did they come out of QiG into unallocated corporate and is that QiG loss that we experience in 4Q is that a good run rate going forward over the near term obviously?

Well first of all as you know of our QiG segment that is predominately where we incur our cost for doing research development projects and therefore it’s not -- I wouldn’t think of it as a run rate type of business when you look at it. It is going to go up and down based upon our level of funding of projects and what we want to do. However, I do believe that the run rate that you saw for the first quarter is a little bit below the normal run rate primarily because we had realized upside with customers paying us for projects that we were doing for them. And we were up in the first quarter I believe almost $2 million of what our normal run rate previous year. So it is a little bit like only because of those good news. Those reimbursed, those payments that that customer has made for us are very lumpy. We hit a milestone we get a payment. So quarter-over-quarter it’s not best to take QiG in terms of a run rate. When you look at the unallocated and you look at the increase we move some expenses from unallocated to Greatbatch Medical and that’s why you are seeing the unallocated increase. We took some expenses, if you look on table A, 1,647 most of that is just a movement between unallocated to Greatbatch Medical so that by year end for tax purposes on the [indiscernible] that we set up we had the expenses aligned with where we incurred and how good our overall tax position to put the expenses where it was being incurred in order to reduce our taxes. So that is a just a flip flop between unallocated and Greatbatch Medical.

Okay, I do appreciate the color on that. And then last question, CRM you are kind of flat to low single-digit market right now, I mean seems like that’s kind of where it’s at. Is there you can do to mitigate some of the volatility that you are seeing in your CRM business?

There is. I mean just by continuing Matt to win all the product development programs that we have active with our customers and making them successful, hit the regulatory milestones, is that we believe that’s the best position. Now in that net debt revenue line for us also incorporates neuromodulation which is much faster growing albeit a much, much smaller market. Our ability which has been very strong to win neuromodulation business will continue to have an increasing material effect but right now compared to low voltage and high voltage component side in CRM, it’s nowhere near those levels but it will continue to increase in its meaningful contribution. The one effect that we really cannot manage is the fact that we have sold large pools of inventory to OEMs based on their resource management and pool of our products. Now that’s great because they rely upon us but if they want multiple millions of dollars of a shipment pulled in or pushed out that does result in one, a factor of lumpiness. The second factor of lumpiness which is tough to smooth out is launches or end of life. So what we always do is obviously encourage that we do this on a rolling or smooth basis. We do our best to call out one time effects like we have on inventory tightening at customers for cardiac rhythm management for the fourth quarter that we called out, that we get a better idea of how we are doing relative to the growth in the market. But it’s our intention as a company in cardiac and neuromodulation is we should be growing in the mid-single digits based on the opportunities that we are doing designs for and see within the markets and that we should be able to grow faster than the underlying markets given the success that we have been having in those areas. And we didn’t demonstrate in 2014, that is not satisfactory from a leadership perspective, from Mike’s point of view and it’s our plan to get corrected going forward by continuing to stay on time and connected with customers on the launches as well as their development programs.

All right, thank you very much Tom, Mike, Betsy have a good night.

The next question comes from the line of Charles Haff with Craig-Hallum. Please proceed.

Hi thanks for taking my follow up questions. Regarding the foreign exchange hit of about 1.5% is most of that falling in the orthopedic or is that spread in some of the other areas?

It’s predominantly all orthopedics.

Okay, thank you. And then the operating cash flow guidance for 2015 of $80 million to $100 million is a fairly wide range and I know on the sales side you are kind of guiding people down to the lower end of the posted guidance. Should we think about the operating cash flow guidance as we should thinking more in the low range there or is that range still valid in any revenue range scenario?

I think that range is still valid in any revenue range scenario one of the factors that also as Tom indicates we have large customers that also try to manage their cash flow at the end of a quarter and we can have someone hold up on it and invoice and pay us January 3rd rather than December 31st and it’s a $20 million payment. And so we provide that wide ranges simply because our customers, we make component parts but we aggregate them into big shipment and then we ship them all at once and to Tom’s point they are going hold up on the shipments and then they can take an invoice and hold up and pay us in 35 days rather than 30 days or even sometimes 45 days and it materially impacts our cash flow that’s the main reason why we give that type of range because we are impacted by those types of moves. First two weeks of January we collected $17 million of cash on our receivables.

Yeah so I Charles to understand it is our ortho business the translation effect and FX is mostly top line because we obviously, we predominantly sell in euros and our expenses are in euros. So we are naturally hedged down through the P&L and to cash flow statement and so I think if we think of it that way and then in light of Mike’s comments that’s we structured it so that’s efficient.

Okay and then my last question is on NRE revenues you had $9.1 million in 2014, could you help me understand the NRE revenues and where they kind of fall in your reporting segments and I mean are these revenues that you receive are they really high margin relative to your other businesses since it’s all service or how should we think about NRE from a margin perspective?

NRE for our Greatbatch Medical segment and that’s where you mostly find it, is a reduction to our RD&E expenses. So it’s a cost reduction for us. However in our portable medical, in our CCC Medical they do price their design services which often times the customer owns and that’s the difference from the Greatbatch Medical model and that would be in revenue but we call that engineering services. So we had about $9.1 million of NRE reimbursements in 2014 and we anticipate being in that range for 2015 also and that’s the parameter that’s helping us with our customers because it means they are coming to us to design new products for them in the future.

And just for clarity Charles it’s a business practice choice that we negotiate with our customers because there are like certain cost in the development that we incur to be subsidized and paid in advance rather than us amortizing it in the cost of the product going forward, that’s all.

I see, yes that makes sense thanks.

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 Ciah. I would like to remind those of you that are on the call both the audio as well as the visual portion of our discussion today will be archived at our website at www.greatbatch.com and will be accessible for the next 30 days. Thanks a lot for the questions and joining us. Have a good afternoon.