Integer Holdings Corp (ITGR) 2015 Q1 法說會逐字稿

Welcome, everyone, to the first-quarter 2015 Greatbatch, Inc. conference call.

Before we begin, I would like to read the Safe Harbor statement. This presentation and our press release contain 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, Inc.'s current expectations, and actual results could differ materially from those stated or implied. The Company assumes no obligation to update forward-looking information included in this conference call to reflect 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. Please proceed.

Thank you, Jackie. Hello, everyone, and thank you for joining us today for our first-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 website, www.Greatbatch.com. Once Tom and I have completed their -- Tom and Michael have completed their presentations, we will then open the call for a Q&A session. Both Michael and I are available to take questions following the call.

Let me now turn the call over to Tom Hook.

Thank you, Betsy, and good afternoon to all of you who are joining the call today. Slide 5 is an executive summary of our performance for the quarter, our plans and expectations going forward.

We are confirming our guidance, although the first-quarter performance was down versus Q1 2014 in every key measurement. Sales down 7%, adjusted operating income down 23%, and return on invested capital was down 30 basis points on a trailing 12-month basis. Our adjusted earnings-per-share is flat over -- year-over-year at $0.54 per share, primarily because we have a much lower effective tax rate.

On the next few pages, Michael and I will explain the drivers behind this performance, so you understand what is happening. We anticipated a down quarter when we set our guidance to achieve our commitment of at least 5% revenue growth and two times adjusted earnings-per-share growth. We are staying with our guidance for the total year because of several key drivers that will improve our short-term and long-term results.

First, we are having success with our neuromodular stimulation strategy of becoming the definitive leader of critical technologies for the neurostimulation market. We are establishing a track record of providing reliable and meaningful solutions through a culture of life-improving and life-saving technology. Our success in neurostimulation, as we utilize CCC Medical Devices for emerging indications and partnerships through GB ventures, is one of the drivers that are improving our performance for the balance of the year.

Today, we announced a proposed tax-free spinoff of Algostim LLC. Algostim is a subsidiary of our QiG Group. The proposed spinoff would create a newly-publicly traded company focused on commercializing the Algovita spinal cord stimulation system to treat chronic and tractable pain of the trunk and/or limbs.

Greatbatch, the entity I will continue to lead, will focus on expanding its core business and providing complete medical device systems for our customers. We believe that if we are successful with the proposed spinoff, it will drive shareholder returns.

Our core business had mixed results. Orthopedics continues to have sustainable constant currency double-digit growth. However, cardiac neuromodulation will continue to show the impact of end-of-life products and customer inventory initiatives for at least one more quarter.

In addition, our portable medical product line fell short again this quarter, though we are very encouraged because of the pipeline of products we are working on and the excellent progress we are making in transitioning to our new manufacturing facility. We also have several margin expansion initiatives that are on or ahead of schedule.

In summary, a weak performance this quarter but solid progress on all of our critical initiatives to enhance our near-term and long-term performance, which results us confirming our guidance for the total year. First-quarter 2015 sales of $161.3 million decreased 7% on both an as-reported and on an organic constant currency basis in comparison to the prior year.

Sales for the first quarter of 2015 include $3.9 million from CCC Medical Devices, which was acquired in August 2014, and the impact from foreign currency exchange rate fluctuations, which reduced first-quarter sales by approximately $4 million in comparison to the prior year, primarily due to the strengthening of the dollar versus the euro.

The sales decrease in comparison to the prior-year period was primarily a result of tough comparables during the first-quarter 2014. Approximately $5 million of the impact resulted from end-of-life products in our cardiac product line in addition to continued weakness in our portable medical product line. Partially offsetting these increases was an 18% constant currency increase in orthopedic revenue, due to market growth, new customer wins, and the benefits from our investments in capacity and capability at our Chaumont branch facility.

We recorded $14.1 million of adjusted net income, which is up 2% from the same period 2014. Adjusted diluted earnings per share totaled $0.54. Our results were negatively impacted by $0.13 due to lower volume and unfavorable product mix. Partially offsetting the volume in mix were favorable taxes with an adjusted -- effective adjusted tax rate of 17.9%, and foreign exchange favorability due to the strengthening of the US dollar versus the euro.

Slide 7 summarizes our organic constant currency revenue performance by category for the quarter. Beginning on slide 8, I will provide some comments on each of our product lines.

For the quarter, cardiac neuromodulation revenue, net of inter-segment sales, totaled $75.6 million, 12% below a record first-quarter 2014. Our medical battery sales increased $1.8 million in the quarter for new product launches. Strong medical battery and coated component volume help to offset the impact of end-of-life products. Sequentially, cardiac neuromodulation revenue was up 11% versus fourth-quarter 2014.

Relationships with our customers are strong, with a 90% of our cardiac neuromodulation portfolio is secured by long-term agreements. We have 20 development programs in progress with our customers, some of which start delivering revenue in the second half of 2015.

First-quarter orthopedic product line sales on an organic constant currency basis grew 18% to $39 million when compared with the same period 2014. Foreign currency fluctuations impacted the as-reported sales by approximately $4 million, resulting in a 7% growth. For the quarter, implants grew 6% and 27% on a constant currency basis, demonstrating the strength of our products in the marketplace.

Our strategy remains unchanged in this product line. We continue to win with our bone cutting preparation technology and the service model we employ in delivery systems.

Total medical sales were down 29%, but slightly more favorable is expected in the quarter. We see our year-over-year comparisons moderating throughout the year. As to our previously announced capacity investments in Mexico, these will be online in late 2015. With this manufacturing transition and a focus on custom power solutions for the market, we are receiving positive customer feedback for these innovative proprietary products.

Sales of our vascular product line were 21% below Q1 2014 on revenue of $10.4 million. These results are due to end-of-life products, customer inventory management, and order patterns. Sales of our steerable catheters offset some of the decline in the quarter. We will experience tough comparables as customers work through their inventory in the near-term.

We are on schedule with the manufacturing facility move to Mexico. Energy, military and environmental revenue of $17.7 million was 2% behind the same period 2014. These results were driven by lower energy revenues, as expected, and offset by 10% growth in military and environmental. Our expertise in critical battery technologies are empowering our customers' products and enhancing their exploration efficiencies.

In summary, the first-quarter revenue does not give us pause, and we have line of sight with our customers and programs. We have demonstrated our ability to relocate manufacturing facilities, taking into consideration our customers' needs, and furthering productivity within Greatbatch. CCC Medical Devices continue to prove their value within Greatbatch, and we expect their contributions to gain momentum throughout the year.

I will now turn the call over to Michael for more insight of our balance sheet and our 2015 guidance.

Thanks, Tom, and good afternoon, everyone. I'm very pleased to be on the call today to give -- to provide insights to our capital deployment and 2015 guidance.

Slide 14 shows the key balance sheet metrics. Greatbatch has a strong balance sheet with positive cash flow, increasing 5% when compared with first-quarter 2014, and a leverage ratio below 1.5 to 1. We continue to see improvements of adjusted EBITDA, which is on a trailing 12-month basis, increase $900,000.

Adjusted ROIC contracted 30 basis points due to the lower first-quarter 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% for the year.

We continue to make progress with DSO metrics as we focus on collecting past-due receivables. Inventory is tracking closely in all of our manufacturing locations. The build in first-quarter can be explained by the inventory needed to support our sales forecast and customer safety stock.

Both inventory and receivables include assets from CCC Medical Devices acquisition, accounting for approximately $3 million receivables and $4 million inventory in the quarter. For reconciliations from GAAP to adjusted metrics, including the P&L and balance sheet, I will refer everyone to our press release we issued earlier today.

Turning to slide 16. We are confirming the guidance of 4% to 6% revenue growth and 2X our revenue growth improvement in adjusted diluted earnings-per-share and performance. Revenue guidance is $715 million to $730 million. Currency translations could have a negative impacts of approximately 1.5% or $10 million, which is why we are expecting to be at the lower end of our guidance for revenue.

Operating margin is expected to expand 40 to 70 basis points, with continuous productivity initiatives and leveraging SG&A to deliver 13.7 to 14.0 adjusted operating margin. Adjusted EPS guidance is $2.61 to $2.71, assuming fully diluted shares of 26.5 million.

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

Our estimate of other operating expenses totals approximately $22 million, which will be updated for deal-related costs of the proposed spinoff. These are estimated to be $8 million to $12 million at this time.

GAAP and adjusted effective tax rates of 25% and 26%, respectively, are assumed for the 2015 guidance. We estimated CapEx expenditures for the year to be $40 million to $50 million, driven by capital investments in our global manufacturing locations, including Mexico and France. Adjusted operating cash flows are expected to be between $80 million and $100 million, although we anticipate being closer to the lower end of our guidance if we go forward with the spinoff. We will incur deal-related expenses for the proposed spinoff, which, at this time, we estimate to be $8 million to $12 million.

I will now turn the discussion back to Tom to provide comments on the announcement issued this morning on the proposed spinoff of Algostim LLC.

Thank you, Michael. I would like to make a few comments about our neurostimulation strategy as well as the proposed spin.

We embarked on a strategy nine years ago to evolve Greatbatch from strictly developing components and subassemblies to also developing complete active implantable medical device systems for our customers. Algovita continues to move along the regulatory pathway and has received an approvable order from the Food and Drug Administration. This platform and the CCC Medical Devices acquisition are pillars of the strategy enabling Greatbatch to be a leading partner for the development and supply of technology and systems for the neurostimulation market.

On slide 18, we show four key segments of the market. What is encouraging about our future is that we have the ability to support all four segments by leveraging CCC Medical Device capabilities, our combined customer relationships, the Algovita platform, and our global manufacturing and supply chain operations.

Slide 19 shows a large and expanding market. The US market is approximately $3 billion and growing at various rates ranging from the mature spinal cord stimulation market in the low to mid-single digits, to sacral nerve stimulation, which is double-digit growth. Suffice it to say the neurostimulation market is very attractive.

Slide 20 is a slide we have shared with you before because it highlights how Greatbatch is positioned to capture significant market share in the neurostimulation market. We are moving forward on several fronts. We intend to modify the Algovita platform for other established indications in growing and emerging technologies.

CCC Medical Devices will be used for early-stage technologies. We have a large and growing list of interested partners in this space that we can engage with under our GB ventures initiative. Additionally, we are leveraging NeuroNexus and CCC Medical Devices for early-stage research and development. Lastly, we will continue to advance and incorporate the capabilities from our core Greatbatch medical segment across opportunity in neurostimulation.

Today we announced the proposal of a tax-free spinoff of Algostim LLC, which will create a newly-publicly-traded company focused on commercializing the Algovita spinal cord stimulation system. Greatbatch would have a long-term manufacturing agreement with the spun-off company. In parallel, Greatbatch will continue to focus on expanding its core business and providing complete medical device systems for our customers.

We see several benefits to this strategic decision. First, both companies operate in different markets with different capital and resource objectives. The spinoff allows efficient capital allocation for each company to grow profitably.

Second, this approach provides a clear investment proposition to attract long-term investors best-suited for each company. The proposal is subject to the approval of the Greatbatch Board of Directors, confirmation of the tax-free status of the transaction, and the effectiveness of a Form 10 Registration Statement to be filed with the Securities and Exchange Commission.

Over the coming months, we will be advancing the activities leading to the filing of the Form 10 and the closing of the transaction. Details and updates will be provided throughout the process.

With that, let me now turn the call back over to the moderator to take questions.

(Operator Instructions). Matthew Mishan, KeyBanc.

Thank you for taking my questions. I think I'm just going to start off first with -- I think previously, you were indicating that you were looking for a commercialization partner for Algovita. So, maybe just walk through the thinking of what you're going to do with Algostim. Is Algostim going to go direct to market with the device? Or are they still looking for a partner? How are you thinking about that?

I can see that right now we are focused on the process of completing the FDA approval process to complete the PMA application. In parallel with that, we are considering the option to do the spin, at which time that management team would then articulate its strategy for how it's going to commercialize the Algovita spinal cord stimulation system. And Greatbatch would be the manufacturing partner for it.

So, the decisions of the mechanisms for how they would go from there in terms of by country or by either other forms that we've talked about before, via distribution agreements or partnerships, would be determined by the spun-off company, if we choose to execute the spinoff. But right now, since we are only considering it, we still have all options available to us. And the spin is just the opportunity that we are evaluating right now to execute on later in the year.

And what is the timeline for the remainder of the FDA process? Your best estimate.

We are continuing on through the approval process now and we've been following those steps. And is -- I think for us, we're targeting that we will have it completed in 2015. We obviously do not set the timeline. We continue to be active in the steps with the FDA in following the pre-prescribed process and responding to questions.

So -- but right now, our thinking is we are confident it will happen in 2015, but couldn't give a specific date or direction for what it is, because it's still ongoing. And clearly, we are beyond the timeline we originally set, which was at the end of 2014, beginning of 2015.

So we are actively managing it and staying as engaged as close as we can, but we obviously understand that that timeline really is going to get determined by the FDA. And that timeline will affect how we approach this spinoff opportunity here as well, because we would do those in synchronization with each other.

Tom, are you thinking -- are you staying with Greatbatch, or are you thinking about going on with Algostim?

I plan on staying as the Chief Executive Officer at Greatbatch.

Okay. Thank you very much. I'll jump back in the queue.

You're welcome.

(Operator Instructions). Greg Chodaczek, CRT Capital.

Good evening, guys -- and gal, excuse me. In terms of high-frequency with Algostim, can you talk about how important you think that is going forward? Is it something that you can pursue in the future? I'm just curious on what you thought about that product.

The -- well, there's -- I think you -- Greg, just to clarify your question, you mean high-frequency stimulation for spinal cord --?

Yes, yes. Absolutely.

Absolutely. As you know, as we embark on the development of the Algovita platform, we developed the platform as a virtual Swiss Army knife for neurostimulation, which would allow us to do many therapy regimes for neurostimulation, not just for spinal cord, but for other nerve targets that we have actively in development, to leverage that platform.

We're taking a similar approach with technologies that are available out of our CCC Medical Devices. So, we do feel, based on the positive information that has been shared by other companies for high-frequency stimulation has a great deal of promise, those proving that out in clinical studies. And as a technology, we have the ability to handle our own innovative therapies, but we have chosen, first, to gain approval of the Algovita system using the traditional capabilities, their traditional therapies that are used within the neurostimulation market for spinal cord stimulation.

And then we would then -- and have considered using the Algovita capabilities of that system to do other therapeutic profiles, which would include elevated frequency stimulation. We haven't communicated what we are doing for secrecy reasons, but we find the innovation level in neurostimulation as a whole market to be very exciting.

And one of the reasons why we have a broad neurostimulation strategy as a company is to tap into it at various points, including areas like you pointed out, it's a specific innovation area, because we think there's great promise in neurostimulation going for decades into the future. And we want to be a core player in that, enabling a lot of our key OEMs to be successful.

So I project that technologies like high-frequency stimulation and others will play a large role in the industry going forward. And we plan to be an enabler and a participant in that work, both at the innovation stage as well as the manufacturing and supply chain stage for OEM customers.

And I know this is a 2016 issue, but if I look at this potential spinoff, it has the products, but it will -- first product is SES, but it still falls under Algovita for DBS, VNS and SNS. Is that correct?

The spinoff is dedicated to spinal cord stimulation. And then that is what we are evaluating at the present time for the scope of the spin. So it's dedicated to what we done our PMA submission on, and the follow-on product developments for spinal cord stimulation.

Oh, okay. So any QiG work for DBS, VNS and so forth will probably not go with Algovita? Is that correct?

That is correct. We will be retaining the QiG Group projects that apply to the non-Algovita spin, so that those areas dealing with spinal cord stimulation, our scope being evaluated is the scope of the spin. And the work that we are doing in other areas would be still part of the QiG group, which would include NeuroNexus; it would include CCC Medical Devices. And that would include Greatbatch ventures. It would be retained.

Okay. So that was the question. All right. I'll jump back into queue, but thanks and congratulations.

Thanks, Greg.

(Operator Instructions). We have a follow-up with Mr. Greg.

Sure. Just another question on CRM and neuromodulation in terms of the Greatbatch medical revenue. You said second half gets a little bit stronger -- did I get that right?

That is correct. We will build momentum throughout the course of the year.

Okay. And then is that just based on life of the projects that you're dealing with, and some of these rolling off and new things rolling on?

Well, we have to obviously work through the end-of-life product effects that are occurring over, clearly, kind of a four-quarter increment that stretches into the first half of this year. So we have one quarter left of that. And the new product wins are going to drive the momentum for us for -- over the course of the year.

But in particular in the second half, a lot of the new product developments that we had won years ago, are precipitating out into the launch phases. So we are very optimistic about those.

And do those range in multiple different areas of the components that you sell?

Yes, they do. So they would incorporate a variety of product technologies. They are very broad-based. They're already under contracts, so we've already passed the product development and contractual negotiation qualification stages. And we are just staying connected with customer launches. And they are very broad-based.

Okay. And we're going to switch gears a little bit here. In terms of -- with oil prices down and a lot of these projects coming off-line, how much do you think that's hurt you?

Great question, Greg. I mean, we know it's a negative effect is, in particular, the oil and gas services companies have rolled off on projects. However, when we look, we are a critical enabler of that technology for customers we make at both the electrochemical cell, the battery pack and the integrated solution levels for customers. And we are a very critical industry player for them all.

And obviously, their drilling activity remains very high. So while we've definitely seen, as I point out in my comments, some pressure on the energy side, we've been able to supplement the military and environmental pieces of the business to mitigate some of that effect.

And despite very heavy pressures in the market, we've been able to maintain that from a growth trajectory fairly flat. So, we are challenging the business leaders in those product segments to manage it despite the headwinds. And -- but certainly you can see the macro industry having negative double-digit effects. So you could certainly project that as a -- the type of headwind we are facing to be able to be flat and grow.

Okay. And one last one in terms of Algostim. Did I hear you correctly? You said it was FDA approvable? Or did I hear something totally different?

We received an approvable letter subject to completion of audits, which are still ongoing.

And when did you receive that?

We -- well, we're actually just announcing it right now. But we have not developed the details of the approvable letter; just that we've received it.

And based on that, it sounds like you are now talking 2015 and not first half of 2015. Is that correct and what I'm remembering correctly from last quarter?

That's correct, is we're focused on having it completed this year. And you are right, as our original timeline was end of 2014, the beginning of 2015. And then -- and we did adjust that based on the status at the time of the year-end call, the first half of 2015. And I think now we're just going to be more generic and say we are targeting sometime in 2015.

Okay. So receiving information from the FDA plus being conservative is what you come up with 2015 for an approval?

That's correct. I mean, I think that we are advancing steadily through the process. We are doing good work. It's just a very large submission. And we are staying engaged. And obviously, we don't control the timeline. But we are advancing productively in the right direction. But it's going to take more time than we originally planned.

Okay. And based on what I'm hearing from you, it's not you need to run trials or anything else; it's just some internal stuff you need to take care of?

That's correct. We have not been asked to run trials.

Okay. Fantastic. Thanks for answering my other 15 questions. I appreciate it.

Matthew Mishan, KeyBanc.

I'm just going to understand the strategy of -- you're going to still have all these costs with the QiG group without necessarily any revenue to cover them. Why spin-out the device when it's just about to generate revenues that should be able -- would be able to start covering those costs?

Well, just to correct, obviously, is when we do the spinoff of the Algostim LLC subsidiary, a team of individuals would obviously be conveying to run it. So there would be a cost. And we would retain the manufacturing agreement, so we would actually obtain revenues when we sold the system to that new publicly-traded company. And we would recognize revenues that would end up generating margins for us as Greatbatch in that construct.

And then that's how we are evaluating the construct. I think that's a very -- this is consistent with the original QiG model, where we said that we would entertain selling these -- what we call newcos, which Algostim was the first one in its leveraging the Algovita platform.

And we said that we would potentially joint venture or partner it, or sell it or take it public, so we've elected to evaluate taking it public via the spin route. And it would then largely function how Greatbatch interfaces with its traditional customers as a manufacturer partner and a technology supporter at the discrete product level, and allow that company to run as an independent company, much like all of our companies our customers run today.

So it's very consistent with the strategy we had since 2008. And obviously, while we haven't -- we are not executing on the spin yet, we are just evaluating the possibility, it provides clarity for how we are going to go forward and monetize the investment for shareholders.

And then what percent -- I mean, what percentage of the QiG operating losses at this point would you say are directly related to Algovita?

We haven't broken that information out yet for you, but will at the appropriate time. But as we said before, the overwhelming majority of what occurs in QiG has been directed towards the Algovita spinal cord stimulation system. And because of that system development and qualification was the large upfront expense over the course of the last six-plus years, that money that's already been spent -- I mean, invested, can be leveraged for other nerve therapy indications.

So, we know, going forward, based on the capabilities we have now between CCC Medical Devices and the Algovita platform we can use for other areas, that we have the ability to be more efficient in terms of our investment and spend, and hence R&D dollars, as we pursue other indications going forward.

All right. Thank you.

Gregory Macosko, Montrose Advisors.

Hi, Tom. Just one question, on a different subject. The facility in Mexico -- that's going to take the ortho products as well as vascular. Could you give us a sense of kind of how much of the product line you expect to put in there? And when do you expect that to kind of be up and running in good order?

Sure. Well, our Greatbatch Medical Mexico Number 1 facility is currently in operation, and that does a great deal of product lines for us from cardio management to neuromodulation. And it also does vascular and orthopedic products today.

Greatbatch Medical Mexico Number 2 facility, which is being built adjacent to that facility, is completing construction as we speak. The portable medical product lines are being moved into that facility from our Beaverton, Oregon operations. And that is actually in process qualification stages over the next several months. So we expect by the end of the year, those portable medical product lines will be manufactured in that new facility that we are constructing.

In addition to that, our vascular product lines in our Plymouth, Minnesota operations are being relocated down to the Greatbatch Medical Mexico facilities. And that move, we are projecting to be completed around the end of this year as well. And certain product lines will be retained in Plymouth, Minnesota for manufacture, but mostly that relates to the lead wires in Algovita products. And the engineering team for the portable medical group will stay in Beaverton, Oregon to continue to do the product development and product design work that would seed the new Mexican manufacturing facility.

So by the end of the year, we expect those transitions to be largely completed, and for 2016 to be enjoying a revenue and profitability picture that is post that transition, which increases our revenue opportunity because of capability improvements, and increases our margin profile because it's a low-cost manufacturing location.

I hope that answers your question.

Yes. No, good. And so, basically, products from Plymouth and products from Beaverton, and obviously some remixing with the portable medical -- overall, if we look at Mexico in 2016, give us a sense of what the potential there from those two facilities is in terms of growth. Are they 40%, 50% utilized? Any sense of that?

From a capacity standpoint, on an overall capability standpoint, we have the ability to use more of our capacity in the plant it will have in place, and will be able to drive double the amount of throughput through the facilities through leverage in capacity expansions, shift time that's not allocated, as well as equipment that doesn't run 100% of the time.

It varies by product line. Some product lines have more capacity, some have less. But we have -- we don't have limits in terms of growth potential out of our Greatbatch Medical Mexico facilities. We plan capacity proactively there, and it will -- we will maintain it that way so it won't inhibit the high growth rate that we will have out of those facilities. We planned it quite effectively.

Good. Sounds good. Thanks, Tom.

Excellent. Thanks, Greg.

Jim Sidoti, Sidoti & Company.

I just wanted to review just a couple quick things. The operating loss in the quarter from the QiG group, $5.5 million. Are you saying the majority of that is related to the Algostim business still?

The majority of it is related to the Algostim development and qualification of that systems through its regulatory for specific Algovita spinal cord stimulation platform. Because that's the major projects that we are working on. So that's the bulk of the work we have ongoing. The other pieces within that operating segment are either out of CCC Medical Devices or NeuroNexus, which those pieces don't really contribute to the operating loss.

But a year from now, should you spin this division off, you would think that number would be down in the $2 million to $3 million range?

We haven't provided guidance on that. We will at the appropriate time. But your thought process is directionally correct.

Okay. And what was the pro forma tax rate in the quarter?

25% -- well, 18% for the quarter. And the reason for that, when we give guidance of 25% for the total year, we had a couple audits that were completed recently. And the benefit of those audits are reflected in the current quarter, as we came out of those audits without any problems, and in one case, a little bit of upside.

Okay. And then I know you don't give quarterly guidance, but can you just give us a little help directionally? Considering you still have some end-of-life issues in the second quarter and currency is still going to be a headwind, do you think the second quarter again will be down year-over-year for the first quarter?

Well, that's asking for guidance. (laughter) You're very good at that. We do expect that the second quarter, particularly in our CM market, will still be a challenge for us, because end-of-life and the new products have not kicked in. So the pattern for us will be a much stronger third-quarter and a stronger fourth-quarter. Particularly some of the products that start in the third quarter, we are expecting growth up to the normal run rates, so the fourth-quarter is a very strong quarter for us.

Okay, thank you.

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

Thank you, Jackie. I would like to remind you that both the audio portion of the call and the slide visuals will be archived on our website at Greatbatch.com, and will also be accessible for the next 30 days. Thank you again for -- everyone, for joining us and have a great evening.

Ladies and gentlemen, thank you for your participation on today's conference. This concludes the presentation. You may now disconnect and have a great day.