CYBX

November 4, 2014
CYBERONICS
INCORPORATED
CYBX/NASDAQ

Continuing Coverage: Cyberonics keeps their Nerve

Investment Rating: Market Perform
PRICE: $ 52.00 S&P 500: 2,012.10 DJIA: 17,383.84 RUSSELL 2000: 1,165.42
 Need for replacement batteries generates recurring revenues
 Focus on international markets offers huge growth potential
 Commitment to R&D and technology innovation drive investment
strategy
 Regulatory approval is necessary to offer new products and enter
new markets
 Our 12‐month target price is $59.00

Valuation
EPS
P/E
CFPS
P/CFPS
2014 A
$ 2.00
26.0x
$ 1.98
26.2x
2015 E
$ 2.14
24.3x
$ 3.06
17.0x
2016 E
$ 2.55
20.4x
$ 3.15
16.5x

Market Capitalization Stock Data
Equity Market Cap (MM): $ 1,324.23 52‐Week Range: $46.23 ‐ $73.51
Enterprise Value (MM): $ 1,216.55 12‐Month Stock Performance: ‐9.49%
Shares Outstanding (MM): 25.47 Dividend Yield: Nil
Estimated Float (MM): 21.64 Book Value Per Share: $ 10.38
6‐Mo. Avg. Daily Volume: 162,759 Beta: 0.58

Company Quick View:

Cyberonics Inc. (CYBX) is a medical device technology company
headquartered in Houston, Texas. The Company manufactures and
markets the Vagus Nerve Stimulation Therapy System (VNS Therapy), an
FDA approved treatment for refractory epilepsy and treatment‐resistant
depression.
Company Website: http://www.cyberonics.com/

Analysts: Investment Research Manager:
Arpit Bhopalkar J. Brad Bauguss
Cheng Chen
Daniel Hall
Se Hwan Kim
The BURKENROAD REPORTS are produced solely as a part of an educational program of Tulane University's
Freeman School of Business. The reports are not investment advice and you should not and may not rely on
them in making any investment decision. You should consult an investment professional and/or conduct your
own primary research regarding any potential investment.
Wall Street's Farm Team
BURKENROADREPORTS

Cyberonics Incorporated (CYBX) BURKENROAD REPORTS (www.burkenroad.org) November 4, 2014
2
Figure 1: 5‐year Stock Price Performance
Source: Yahoo Finance November 4, 2014
INVESTMENT SUMMARY
We recommend a Market Perform rating for Cyberonics Inc., and forecast a 12‐month target
price of $59.00. We primarily used the discounted cash flow method to arrive at this target
price. We also analyzed multiples including enterprise value to earnings before interest, taxes,
depreciation, and amortization (EV/EBITDA) method and price to book value for comparison.
Cyberonics is a producer of implantable medical devices used primarily for the treatment of
refractory epilepsy. The Company’s main product is the Vagus Nerve Stimulation (VNS)
Therapy System, a neurmodulation device. This device is inserted under the skin of patients
and stimulates the vagus nerve to treat epilepsy, treatment resistant depression, and, most
recently, chronic heart failure. Due to the finite nature of the device’s batteries, Cyberonics
enjoys repeat business from customers in need of battery replacement. To date,
approximately 70% of treated patients have continued treatment with product replacement.
As a result, the Company generates significant revenue from previous patients as well as new
customers.
Continued growth will occur through increased market penetration in both domestic and
international markets. The upcoming completion of the new production facility in Costa Rica
will further increase profitability of international sales. Notably, foreign production will enable
Cyberonics to avoid high tax expenses from exportation out of the U.S. This foreign production
capability is significant as the Company sells its products in over 70 countries, and has almost
doubled its international sales in the past three years.
Furthermore, to enhance sales and maintain competitive advantages, Cyberonics increasingly
invests in product diversification and technology. Research and development (R&D) is a
primary focus for the Company as it develops the next generation VNS Therapy System,
rechargeable battery technology, wireless communication technology and improved lead
technology. Overall, R&D as a percentage of sales reached a high of 16.51% for 2014, well
above the peer average of 9.00%.

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We believe Cyberonics is a good buyout candidate because of its extremely small debt and its
share price over the past few weeks has been stable. The company has a significant unused
debt capacity at the moment which can be used to finance a buyout. Furthermore, only small
amount of stocks are management owned and a large quantity of CYBX stock is floated in
market. The potential acquirer can buy the shares directly from the institutions.
Table 1: Historical Burkenroad Ratings and Prices
Date Rating Price*
11/21/13 Market Underperform $59.00
11/06/12 Market Perform $48.00
11/16/11 Market Outperform $40.00
11/29/10 Market Perform $32.17
*Price at time of report date
INVESTMENT THESIS
Cyberonics’ strong financial performance during fiscal year 2014 and high potential for future
growth form the basis for our expected target price of $59.00. According to our analysis and
research, we believe current growth will continue based on recurring sales and the increased
awareness of the Vagus Nerve Stimulation (VNS) Therapy within the medical community.
Additionally, the Company aims to diversify its product offerings by investing in research and
development (R&D) and looking for strategic acquisitions. Company growth strategy also
centers upon increasing sales internationally. Not all developments have been positive. Due to
a non‐reimbursement designation by the Center for Medicare and Medicaid (CMS), Cyberonics
has lost potential revenues from the use of VNS for depression treatment. Thus, we have not
included the market for depression treatment in our analysis.
Need for replacement batteries generates recurring revenues
Cyberonics’ recurring sales revenue is one of the major drivers of growth for the Company.
According to Cyberonics, around 70% of patients with VNS Therapy have replaced the device
battery. However, due to developing competition in the refractory epilepsy treatment market,
Cyberonics’ management forecasts that the replacement growth rate will stabilize in the mid‐
single digits for the foreseeable future. In addition to the U.S. market, sales from replacement
batteries are growing internationally. In contrast to the U.S. market, management expects the
international replacement market to grow, reaching the low to mid‐teens in 2015. With the
gradual growth in Cyberonics’ customer base, Cyberonics business model should produce both
stable revenue growth and increased profitability in mid‐term future.

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Increased Focus on international markets offers huge growth potential
Cyberonics sells products in 73 countries, implanting medical devices in over 70,000 patients to
date. In fact, the Company has almost doubled its international business over the last three
years, reaching $55 million in 2014. The Company expects its new production facility in Costa
Rica to be functional by December 2014, producing shipments to Europe and later to other
international markets. Cyberonics seeks to strengthen its foothold in Canada and Europe and
intends to expand its epilepsy business in Latin America (including Brazil), Russia, Australia and
Asia pacific region. Altogether, the Company expects its international business to grow around
mid to high teen percentage.
According the World Health Organization study on epilepsy, approximately 150,000 new
patients in western Europe are diagnosed with epilepsy every year. Therefore, patient growth
is promising in Cyberonics second largest market. In Japan, Cyberonics experienced an
estimated 20% growth in sales of the VNS Therapy implants during the first quarter of 2015.
Similarly, the Company expects 20% of year over year growth in Japan due to the increased
number of referrals by doctors. The Japanese market is strong with one million epileptic
individuals and 50,000 new cases occurring each year. For this reason, expansion plans for
Japan are underway and Cyberonics expects to have its first direct employee base in Japan in
the second quarter of fiscal 2015. Latin America is also a promising market for the Company
with the AspireSR generator reaching 35% increase in sales volumes. The successful launch of
Cyberonics' AspireSR generator in the United Kingdom and Germany is well in line with
management expectations.
Commitment to R&D and technology innovation to drive investment strategy
Cyberonics strives to maintain a leadership position in the VNS Therapy market. In order to
continue as the market leader, Cyberonics invests considerably in marketing and developing its
pipeline projects. Some of the future projects include ‐ next generation VNS Therapy System,
including generators which utilize cardiac and brain‐based seizure detection stimulation
paradigms, rechargeable battery technology, wireless communication technology, and
improved lead technology. The Company made quick progress in developing products in the
areas of external epilepsy monitoring, rechargeable battery technology, and the magnetic
resonance imaging (MRI) compatibility of its pulse generators. By improving current offerings,
Cyberonics is able to grow its average unit price and to encourage patient replacements.
Regulatory approval is necessary to offer new products and enter new markets
Decisions by regulating bodies continue to define the products Cyberonics can offer and which
markets the Company can enter. Recently, the Company received regulatory approval in
Europe for its new product, the ProGuradianRest. The product is an in‐home event tracking
and monitoring system designed to detect, record and notify medical services of seizures
accompanied by heart rate changes or movement. Following European regulatory approval,
Cyberonics filed for approval with the Food and Drug Administration in the U.S. and awaits
results.

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In another important development, the Company recently completed the Autonomic Neural
Regulation Therapy to Enhance Myocardial Function in Heart Failure (ANTHEM‐HF) clinical
study assessing the safety of autonomic regulation therapy for chronic heart failure. Initial
results from the study have already been presented at the European Society of Cardiology
meeting on September 1, 2014. The Company is currently working on submission of the study
for European regulatory approval followed by a commercial launch in Germany. Due to the
promising results, Cyberonics is planning to increase its investment in this area in fiscal 2015
and is considering partnership opportunities.
VALUATION
We determined our 12‐month target price of $59.00 for Cyberonics, Inc. using the weighted
average of a discounted cash flow (DCF) method and two forward looking relative multiples:
price to earnings and enterprise value to earnings before interest, taxes, depreciation, and
amortization. We believed that weighing the three methods was important in order to arrive at
the most realistic 12 month target stock price for Cyberonics.
Figure 2: Burkenroad Valuation
Discounted Cash Flow (DCF) Model
We selected the DCF valuation method as one of our three models because of its ability to
predict future cash flows based on historic performance. Using a two‐stage DCF model, we
forecasted a 10.5% growth rate until fiscal year 2024 based on the past performance and the
future growth prospects of the Company through repeated sales, technology investments, and
research and development. We also assumed a terminal growth rate equal to 6%. For the cost
of capital we used the 20‐year Treasury rate as the risk free rate, a market risk premium of
5.7%, 0.69 as the equity beta, and a 31.3% effective tax rate. We came to a cost of capital of
6.73% and used a liquidity risk premium of 7% to get the final after tax discount rate of
13.73%, which led us to a discounted price of $46 per share.
EV/EBITDA Multiple Method:
EV/EBITDA multiple is a widely used multiple based on a company’s enterprise value. This
multiple is also capital structure neutral and thus can be used to compare companies having
different leverage ratios.

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Our forward looking EBITDA for the Company was calculated at $169 million with 26.5 million
shares outstanding. We assumed the industry EV/EBITDA multiple to be 12.5x, which gave us
the price of $79.65.
P/E Multiple Method
P/E multiple is one of the most widely used investment multiples. The multiple is the ratio
between the market price of a stock and earnings per share. Using our 2015 forecasted annual
earnings per share of $2.15 and an industry average P/E multiple of 25x, we found the 12
month target share price to be $54.
INDUSTRY ANALYSIS
Cyberonics is a medical device company focusing on implantable neurostimulation devices.
The U.S. Food and Drug Administration (FDA) defines a medical device as “an instrument,
apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or
related article.” According to Yahoo Finance, the U.S. medical device market will reach $398
billion in 2017. There is great potential for growth in a system of constant technological
advancement. However, government regulation and a shift toward value‐based healthcare
also pose a threat to future profitability.
Industry Drivers
Government policies and regulations greatly impact the medical device industry. All products
must be approved by regulatory bodies and medical device manufacturers have to meet
rigorous standards, in both domestic and foreign markets. Several other external drivers may
also impact the industry. For instance, Medicare coverage and federal funding are also
significant industry drivers. These two factors go a long way in determining treatment options
and costs for patients and revenue for medical device companies. Exchange rates also impact
performance for companies like Cyberonics that sell goods overseas.
Threat of Entry
The threat of entry in the medical device industry is, for the most part, low. The factors driving
entry requirements such as research and development (R&D) costs, patent protection laws,
and regulatory approvals require significant capital and time investments. For example,
Cyberonics spends on average 16 % of sales revenue on R&D expenses. Further, a patent helps
insure the payoff from R&D by maximizing patent owner's competitive advantage. However,
the FDA regulates the medical device industry in the U.S and obtaining FDA approval in the U.S.
is a lengthy and risky process. In addition, the process requires significant proof of efficacy.
Also, the regulatory approval process differs by geography. For example in Europe, the barrier
of entry is lower because medical device manufacturers go through a comparatively shorter
process in obtaining the Conformité Européenne mark of approval (CE mark) to sell products in
the European Economic Area. Because of the low entry barrier in Europe, Cyberonics’ AspireSR
generator is already approved for implementation but still awaits FDA approval in the U.S.

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Bargaining Power of Suppliers
Suppliers of materials and components for Cyberonics products have significant bargaining
power. The FDA strictly regulates the quality of medical devices provided in the U.S. As such,
high quality and functionality of all technology and products are of utmost importance to the
Company. Cyberonics must use sole‐sourced suppliers to ensure the necessary quality and
availability of components. This type of supply chain limits alternatives for material acquisition.
Consequently, a high dependence on a limited number of sources gives these suppliers high
bargaining power.
Bargaining Power of Buyers
Buyers have fairly high bargaining power with within the medical device industry. The
emergence of competing products, relations with practicing physicians, and the verdicts of
third party reimbursement impact a medical device manufacturer’s price controlling ability.
The Vagus Nerve Simulation (VNS) Therapy system is a very modern and technologically
advanced treatment. But, this treatment does not have unanimous market acceptance in the
medical industry. So, it is imperative for Cyberonics to maintain relationships with practicing
physicians who recommend and perform the procedure. The Company is also subject to
decisions regarding third party reimbursement to customers, such as Medicare and Medicaid.
Many patients cannot afford the treatment without third party reimbursement. As a result,
Cyberonics must keep prices competitive.
Availability of Substitutes
Currently in U.S. and other major markets in the world, epilepsy surgery and VNS Therapy are
indicated as two potential adjunctive treatments for patients with drug resistant epilepsy.
Thus, surgical epilepsy treatment is a direct substitute for VNS Therapy. If a patient is willing to
undergo brain surgery, epilepsy surgery is considered a potential treatment when seizure
medications alone are ineffective. However, due to patient’s unwillingness to undergo invasive
brain surgery, epilepsy surgery treatment is not a strong substitute for VNS Therapy.
After Cyberonics’ patents related to VNS Therapy expired in 2011, the risk of competitors
bringing similar products to market emerged. Lastly, drug therapy could become a potential
substitute if an effective treatment is developed.
Competition
Cyberonics faces competition from a number of sources. As a producer of implantable therapy
devices, Cyberonics’ biggest threat may come from pharmaceutical companies developing non‐
invasive drugs. Many current and potential customers may opt for an alternative, less‐invasive
drug treatment, if one becomes available.
The Company has a few specific competitors in the market of epilepsy treatment devices.
Foreign based companies Neurotech and CerebralRX Ltd. have developed similar products and
market them outside of the U.S. Medtronic, Inc. is a U.S. based company currently seeking FDA
approval to market a new neurostimulator device for epilepsy.

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More importantly, NeuroPace, Inc. has already gained FDA approval for a device similar to
Cyberonics’ and has begun selling in the U.S., diminishing Cyberonics’ new patient acquisition
in recent years.
Incidentally, Cyberonics also expanded into the anti‐depression field in recent years. The
Company primarily competes with drug therapy in this field. However, companies including
Neuronetics, Inc. and Brainsway, Ltd. have developed non‐invasive device therapy treatment.
A crowded competitive space and numerous treatment options threaten Cyberonics’ success
in the anti‐depression market.
Figure 3: Cyberonics Sales Distribution

Source: Cyberonics 10‐K April 25, 2014
ABOUT CYBERONICS
Cyberonics Inc. (CYBX: NASDAQ), incorporated in 1987, is a medical device technology
company that offers the Vagus Nerve Stimulation Therapy (VNS) Therapy, to treat refractory
epilepsy, and treatment‐resistant depression (TRD). Reese S. Terry, a biomedical engineer,
identified the potential value of research conducted by neurophysiologist Dr. Jacob Zabara and
together they formed Cyberonics. The Company is traded on the Nasdaq Stock Exchange under
the ticker CYBX, operating the design, development, sale, and marketing of the VNS Therapy
System.
Cyberonics is headquartered in Houston, Texas, and conducts business in North America,
Europe, Asia, Latin America, and the Middle East. In 2014, the Company’s international sales
reached $55 million, making the international market an important focus for the Company (see
Figure 2). In addition to a manufacturing plant in Houston, Texas, Cyberonics recently
completed construction of the second manufacturing facility in Costa Rica. The new plant is
expected to deliver its first shipments in late 2014.

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The VNS Therapy System is designed to treat refractory epilepsy and depression. The U.S. Food
and Drug Administration (FDA) approved the VNS Therapy System for use as an adjunctive
therapy for epilepsy in July of 1997 and for depression in July of 2005. As of April 25 of 2014,
Cyberonics had treated approximately 89,000 patients for epilepsy and roughly 4,100 patients
for depression with the VNS Therapy System.
Cyberonics has enjoyed encouraging growth in sales and earnings over the last six years, but it
has also encountered challenges. The Centers for Medicare and Medicaid Services (CMS)
issued a national non‐coverage determination for the reimbursement of the VNS system for
patients with TRD. With a device and surgery cost of approximately $32,000, Cyberonics may
miss out on a significant amount of Medicare and Medicaid patients without CMS
reimbursement. Cyberonics appealed the national non‐coverage determination and continues
to facilitate access to the VNS system for people with TRD, but the results remain uncertain.
Products
Cyberonics’ flagship product is the VNS Therapy System. This device was originally developed
to prevent seizures associated with refractory epilepsy. Today, the VNS Therapy system is also
used for treatment of TRD. This system treats ailments with a device implanted under the skin,
attached to the vagus nerve. The product primarily consists of a generator, lead, and external
magnet. The generator regulates the system and sends electrical signals to the lead. The lead
connects directly to the vagus nerve and sends the electrical signals from the generator to the
brain. There is also an external magnet that a patient can use to control stimulation.
Cyberonics also manufactures all components integral to the installation of each device. These
items include tools used in surgical implantation, device programming, a variety of generator
models, and battery replacements, which are integral to generating revenues.
The Company performs constant research and development into creating new products,
improving existing products, and finding new uses for existing products. Cyberonics has made
recent breakthroughs regarding the Vitaria generator for treatment of Chronic Heart Failure
(CHF). Cyberonics is developing the ProGuardian™ System that provides in‐home seizure
monitoring and notification, as well as the Centro™ Generator that has an advanced wireless
communication system allowing direct communication between the generator and the
programming system.
Strategy
Cyberonics Inc. is currently focused on two strategic fronts. The first focus is in increasing
market penetration and promoting repeat business in both domestic and international
markets. The second strategy is investing in research and development of new products and
technologies.
According to the Centers for Disease Control and Prevention (CDC), there are between 2.2
million and 2.8 million epilepsy patients in the U.S., with approximately 150,000 new cases
diagnosed each year. Based on these figures, the U.S. market alone provides considerable
potential for continued and sustained growth. Since 2008, Cyberonics has also placed a strong
emphasis on expanding its international market.

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Cyberonics sells its products in more than 70 countries, and has invested heavily to increase its
international footprint. To facilitate growth, the Company established distribution agreements
and sales forces across the globe. In addition, the Company expects to receive final approval to
start operations at its manufacturing facility in Costa Rica and begin product shipments to
Europe by the end of 2014. The International launch of the AspireSR Generator has continued
to fare well and the Company has been receiving repeat orders in the international market.
Repeat business through battery replacement is another important component of the
Company’s revenues. The battery installed in the VNS Therapy system has a finite lifespan of 1
to 16 years. Because patients must have their battery replaced as it nears the end of its
lifecycle, Cyberonics effectively creates a repeating revenue stream with every patient served.
Cyberonics also invests heavily on research and development of new products and
technologies. The Company is working to develop new non‐implantable as well as wireless
devices for epilepsy treatment. Cyberonics has also invested in applying neuromodulation
therapy through Autonomic Regulation Therapy (ART) for use against chronic heart failure.
Following the favorable results from the Autonomic Neural Regulation Therapy to Enhance
Myocardial Function in Heart Failure (ANTHEM‐HF) clinical study related to ART for treating
chronic heart failures, the Company is expected to expedite its research in developing this
treatment in future.
Latest Developments
In the U.S., Cyberonics sold 2,500 VNS therapy generator implants in the first quarter of the
2015 fiscal year. This performance represented 3% growth in units sold since the first quarter
of the 2014 fiscal year. The Company also increased income from operations by 12% and grew
its net income by 14% over this same time period. The Company’s growth outside the U.S. is
largely influenced by its European operations, where sales grew by 105 units and revenue
growth was close to 17% from 2014 to 2015.
Following the positive results from ANTHEM‐HF clinical study involving ART for heart patients,
the Company is working towards development and commercialization of its new product
Vitaria to treat chronic heart failure. Results show this type of therapy is safe and significantly
improves heart function. These breakthroughs open the door for Cyberonics to enter an
enormous market. Heart function therapy is a very established medical industry, in which
invasive device therapy is already common. Considering this, there is great potential for the
VNS Therapy System in this market.
PEER ANALYSIS
In order to compare Cyberonics Inc. to competitors we selected a group of peers in the
medical device industry. Cyberonics has a limited number of direct competitors in the U.S.
market due to the recent expiration of the Company’s Vagus Nerve Stimulation (VNS) patent.
NeuroPace Inc. recently began marketing a nearly identical product, but most financial data is
unavailable since the company is privately held. Additional peers were selected based on size,
market share and product offerings (see Table 2).

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Table 2: Peer Comparison
Company Ticker
Market
Cap (in
billions)
P/E P/BV
EV/
EBITDA
D/E ROE
R&D
(% of
sales)
Medtronic MDT 63.69 21.99 3.2 11.14 66.5% 15.8% 8.69%
Greatbatch GB 1.09 23.34 1.84 10.14 32.99% 8.86% 8.14%
Masimo Corp. MASI 1.23 21 3.84 12.56 23.56% 19.94% 10.17%
NeuroSigma NSIG N/A N/A N/A N/A N/A N/A N/A
NeuroPace, Inc. N/A N/A N/A N/A N/A N/A N/A N/A
Peer Average ‐ 22.01 22.11 2.96 11.28 41.00% 14.86% 9.00%
Cyberonics CYBX 1.35 23.19 5.05 12.97 1.0% 23.94% 16.51%
Source: Yahoo Finance October 2, 2014
Research and development (R&D) spending is an important metric when studying the medical
device industry because the industry relies on innovation and new product development. This
metric is a strong indication of a company’s future performance. Cyberonics leads industry
spending on R&D with 16.51% compared to a peer average of 9%.
Medtronic (MDT/NYSE)
Medtronic is a global pharmaceutical corporation, headquartered in Minneapolis, Minnesota.
The company has a presence in more than 140 countries. Medtronic is among the largest
medical device manufacturers in the world with a market capitalization of $63.7 billion. The
company’s neuromodulation division manufactures and markets a deep brain stimulation
therapy. The therapy is based on a surgically implanted device that delivers electrical
stimulation to different parts of the brain to block harmful electrical activity. The device targets
the treatment for dystonia, essential tremor, chronic pain, obsessive compulsive disorder, and
Parkinson’s disease.
Greatbatch Inc. (GB/NYSE)
Greatbatch, Inc., headquartered in Frisco, Texas, designs and manufactures cardiac rhythm
management, neuromodulation, vascular access, and orthopedics treatment components. The
company does not compete with Cyberonics in epilepsy treatment. However, Greatbatch Inc.
is a producer of a variety of implantable medical devices and has a market capitalization most
similar to Cyberonics.
Masimo Corp. (MASI/ NASDAQ)
Masimo Corp., headquartered in Irvine, California, is a global medical technology company that
develops and manufactures innovative noninvasive patient monitoring technologies, including
medical devices and a wide array of sensors. The company’s core set of products include
Masimo SET, Masimo rainbow Pulse CO‐Oximetry and brain function monitoring technology.
These products are used to measure hemoglobin levels and assess respiration rates and brain
functioning, respectively. The company operates worldwide and has increased its revenues
four fold over the last five years.

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NeuroSigma (Privately Held)
NeuroSigma, headquartered in Los Angeles, California, develops and sells trigeminal nerve
stimulation (TNS) for a variety of neurologic and psychiatric disorders. TNS is unique among
neuromodulation therapies because it can be delivered via a non‐invasive external trigeminal
nerve stimulation (eTNS™) system or a minimally‐invasive subcutaneous trigeminal nerve
stimulation (sTNS™) system. The company is in pivotal trials to gain approval of its
bioelectronics products in the U.S., and has received marketing approval in Australia, Canada
and the European Union. The company has filed a registration statement with the Securities
and Exchange Commission to raise up to $50 million in an initial public offering (IPO). However,
the company recently postponed the IPO.
NeuroPace, Inc.(Privately Held)
NeuroPace, Inc., headquartered in Mountain View, California, develops and produces medical
devices for various neurological disorders. Comparison metrics are unavailable as the company
is privately held. The company has recently gained Food and Drug Administration approval for
an implantable refractory epilepsy treatment device. NeuroPace now sells this product in the
U.S., diminishing Cyberonics’ new patient acquisition in recent years.
MANAGEMENT PERFORMANCE AND BACKGROUND
In order to measure management’s success in recent years we examined the Cyberonics’
return on invested capital (ROIC). This calculation is a good measure to determine how
effectively a company is using its money to generate revenue. We determined that Cyberonics
has a high and consistent ROIC over the years, which compares favorably to competition.
Table 3 shows a comparison of Cyberonics’ ROIC verse a selection of industry peers. While
there is significant variety in industry returns, it is evident that Cyberonics has noticeably out‐
performed the peer average. Currently, Cyberonics enjoys an ROIC 10.95% above the peer
average and 3% greater than the nearest competitor.
Table 3: Cyberonics Historic ROIC vs. Peers
Company
Ticker
Symbol
2014
(Most Recent)
2013
(Annual)
2012
(Annual)
Medtronic MDT 10.69% 11.13% 13.3%
Greatbatch GB 4.39% 5.31% 9.86%
Masimo Corp. MASI 19.47% 18.50% 22.31%
Peer Average ‐ 11.52% 11.65% 15.17%
Cyberonics CYBX 22.47% 22.70% 19.53%
Source: Bloomberg October 2, 2014

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Board of Directors
The Board of Directors is comprised of seven members including Chairman Hugh M. Morrison,
as well as Guy C. Jackson, Joseph E. Laptewicz Jr., Alfred J. Novak, Arthur L. Rosenthal Ph.D.,
and Jon T. Tremmel. Daniel Moore is the only Board Member who serves the Company in an
additional role. He has been President and Chief Executive Officer (CEO) of Cyberonics since
2007.
The Board’s management compensation committee includes three members:
Arthur L. Rosenthal (chair), Joseph E. Laptewicz Jr., and Jon T. Tremmel. This committee is
responsible for establishing the salary and incentive compensation for Cyberonics’ executive
officers and administering the Company’s stock plans.
Daniel J. Moore
President and Chief Executive Officer (53)
Daniel Moore became CEO and President of Cyberonics in 2007. Since Mr. Moore took the
helm, revenues have grown and the Company has returned to profitability following years of
losses. Before joining Cyberonics, Moore worked at Boston Scientific Corporation for 18 years,
most recently as President, International Distributor Management. He currently serves on the
board for eight other organizations. Moore graduated from Harvard College and received an
MBA from Boston University.
Darren W. Alch
Vice President, General Counsel, Assistant Secretary, & Compliance Officer (48)
Darren W. Alch joined Cyberonics in 2005 as Compliance Officer and Assistant General
Counsel. Since that time he has taken on a number of roles, most recently as Vice President,
General Counsel & Assistant Secretary. In this role, Alch has responsibility for the entirety of
the Company’s legal affairs. Alch earned his JD with a concentration in Health Law from the
University of Houston.
Gregory H. Browne
Senior Vice President, Finance & CFO (61)
Gregory H. Browne joined Cyberonics in 2007 as Vice President of Finance and was promoted
to Chief Financial Officer (CFO) in 2011. He has previously served as CEO and CFO for several
publicly traded healthcare companies, most recently as CFO at Amedys Inc. In 1996 he
founded PeopleWorks Inc., a human resource outsourcing company. Brown received an MBA
from IMD Business School in 1978.

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Bruce H. KenKnight, Ph.D.
Vice President, Emerging Therapy (53)
Bruce H. KenKnight joined Cyberonics in 2013 as Vice President of Emerging Therapies. Before
joining Cyberonics, he worked at Boston Scientific Corporation for 20 years, serving as Vice
President of Research and Business Development for the Cardiac Rhythm Management
Division. Dr. KenKnight frequently contributes to various published works relating to
biomedical engineering and serves as an Adjunct Professor at the University of Minnesota. Dr.
KenKnight holds more than 120 U.S. patents and over 250 patents world‐wide. Dr. KenKnight
earned Ph.D. degree in biomedical engineering from the University of Minnesota. In addition,
he has completed business management training at the Harvard School of Business, University
of Chicago, and the Kellogg School of Management.
Milton M. Morris, Ph.D.
Senior Vice President, Research & Development (44)
Milton M. Morris joined Cyberonics in 2009 as Vice President of Research and Development.
He was promoted to his current position in June 2012. Prior to joining Cyberonics, Dr. Morris
served in several senior management positions for companies including InnerPulse
Corporation and Boston Scientific. He earned his Ph.D. in Electrical Engineering from the
University of Michigan and received an MBA from the Kellogg School of Management. He is
currently named as an inventor on 15 patents and author on 19 publications.
Bryan D. Olin, Ph.D.
Vice President, Clinical , Quality & Regulatory (47)
Bryan D. Olin joined Cyberonics in 2009 as Vice President of Quality and quickly assumed
responsibility for clinical and regulatory affairs. Prior to joining Cyberonics, Dr. Olin served as
the senior director of quality assurance for Zeltiq Aesthetics Inc. and has 17 years of
experience in the medical industry. Dr. Olin received his Ph.D. in statistics from Iowa State
University in 1993.
Sherrie L. Perkins
Vice President, Marketing & New Business Development (60)
Sherrie L. Perkins has served as Marketing Director for the VNS Therapy since joining
Cyberonics in 2000. Since 2011, Ms. Perkins has also held the title of Vice President of
Marketing and New Business Development. Before joining Cyberonics, Ms. Perkins held
various leadership positions in sales, marketing and business development for the medical
device companies Collagen Corp. and Syva Company. She received her Ph.D. in biochemistry
from the University of Miami and her M.D. from Washington University in St. Louis, Missouri.

15
Randal L. Simpson
Vice President, Operations (54)
Randal L. Simpson joined Cyberonics in 1998 and proceeded to serve in a variety of
manufacturing positions. In 2003 he was promoted to his current position of Vice President of
Operations. Before joining Cyberonics, Simpson amassed over 20 years of manufacturing
experience, 14 of which were in the medical industry.
Mark S. Verratti
Vice President, Global Sales (46)
Mark S. Verratti joined Cyberonics in 2005 and served in various sales management positions
before being promoted to Head of Global Sales in 2011. Prior to joining Cyberonics, Morris
served as Northeast Area Director of Sales for Forest Pharmaceuticals. He has over 18 years of
sales and marketing experience in the pharmaceutical and medical device industry.
David S. Wise
Senior Vice President & Chief Administrative Officer, Secretary (59)
David S. Wise joined Cyberonics in September 2003 as Vice President and General Counsel. He
was appointed Secretary in 2003 and promoted to Senior Vice President and Chief
Administrative Officer in April 2011. Responsibilities in his current position include human
resources, information technology, legal, and governmental affairs. Prior to Cyberonics, Mr.
Wise worked at CenterPulse USA Inc., and practiced privately, focusing on intellectual
property and commercial litigation. Mr. Wise currently serves as a member of the Board of
Directors for the Epilepsy Foundation of Texas. He earned his J.D. degree from Duquesne
University School of Law in 1982.
SHAREHOLDER ANALYSIS
As of June, 30 2014, the top ten Cyberonics Inc. shareholders are all institutional investors,
with just over 50% of the shares outstanding. The five largest investors have not changed over
the previous year, though three of the five, Blackrock, Vanguard Group, Inc., and Palo Alto
Investors, LLC, decreased their holdings during this time. The other two largest investors,
Renaissance Technologies Corp. and Eagle Asset Management Inc. increased holdings.
Together, these five institutions held over 8.5 million shares and account for 32% of shares
outstanding (see Table 4).

16
Table 4: Institutional Holdings Summary
Holder Name
Shares
Held
% O/S
Institution
Type
Renaissance Technologies, LLC 2,411,201 9.06
Hedge Fund
Manager
Vanguard Group, Inc. (The) 1,802,672 6.77
Investment
Advisor
Palo Alto Investors, LLC 1,715,430 6.44
Hedge Fund
Manager
Eagle Asset Management Inc 1,331,853 5.00
Investment
Advisor
BlackRock Fund Advisors 1,291,183 4.85
Investment
Advisor
Blair (William) & Company, L.L.C. 1,192,474 4.48
Investment
Advisor
RS Investment Management Co., LLC 1,023,829 3.85
Investment
Advisor
Brown Capital Management, Inc. 920,166 3.46
Investment
Advisor
Kalmar Investments Inc. 873,813 3.28
Investment
Advisor
BlackRock Institutional Trust Company, N.A. 837,824 3.14
Investment
Advisor
As of October 2014, the top five insider holders were important members of the Company’s
management team. These five individuals owned 1.49% of shares outstanding, representing a
2.02% decrease from the previous year (see Table 5).
Table 5: Insider Holdings Summary
Holder Name
Shares
Held
% S/O
Recent
Change
Daniel Jeffrey Moore 155,569 0.58% (3,000)
David S. Wise 70,120 0.26% (2,000)
Gregory H. Browne 62,911 0.24% 0
Mark Verratti 54,663 0.21% 0
Bryan D. Olin 53,424 0.20% 0

17
RISK ANALYSIS AND INVESTMENT CAVEATS
Cyberonics Inc. is subject to several operational, regulatory, and financial risks that have the
potential to negatively impact the Company’s operations. Some of these risks are Company
specific while others apply to the overall medical device industry.
Operational Risks
Market Acceptance of VNS Therapy
Cyberonics’ Vagus Nerve Stimulation (VNS) Therapy System has been an available treatment
since receiving Food and Drug Administration (FDA) approval in 1997. Despite being on the
market 17 years, the therapy has still not received universal acceptance in the healthcare
community. In particular, the use of the VNS Therapy System for treatment of depression is
often considered too invasive a procedure for this ailment. Continued disproval from
practicing physicians could hurt the Company’s profitability moving forward.
Medical and Technologic Advancement
The medical treatment industry is full of innovation and development. Research is constantly
conducted to advance current medical treatments. As such, Cyberonics’ profitability is always
subject to possible advances in current medicine and technology. Company management
believes that eventually, improvements in drug therapy could render VNS Therapy obsolete.
Liability Litigation
Invasive medical treatment products and services carry the risk of legal repercussion due to
the possibility of medical complications in patients undergoing treatment with Cyberonics
technology and ensuing lawsuits. Even if Cyberonics is found not culpable in any case, legal
proceedings can negatively impact the Company’s bottom line.
Regulatory Risk
Third‐Party Reimbursement
The success of Cyberonics’ sales depends upon third party insurer reimbursement for
treatment. In recent years, Medicare and Medicaid have denied reimbursement coverage for
VNS Therapy as treatment of depression. Without reimbursement by insurance providers, VNS
Therapy is often too expensive for most patients. Therefore, Cyberonics’ potential customer
base is diminished.

18
Government Approval
Cyberonics operates in the tightly regulated medical industry. All of the Company’s products
must be approved by the regulatory bodies in the country of operation. The difficulty of this
process varies by location. For instance, Cyberonics has the Conformité Européenne (CE) Mark
of Approval to market the VNS Therapy System for chronic heart failure in Europe, but has yet
to receive FDA approval for the same treatment. Seeking approval adds significant time to the
pre‐market stage of product lifestyles. Additionally, there is always the risk of investing years
of research and money only to be denied approval.
Patent Protection
In the high tech medical device industry, patent protection can be critical. Cyberonics invests a
great deal into research and development and it is much more difficult to recover that
investment if patent protection is not achieved. Also, obtaining the patent approval itself is an
extensive and costly process that delays the release of new products and increases the risk of
technological obsolescence. Upon patent expiration, a company is then subject to significant
risk of imitation from competition.
Financial Risks
Exchange Rate Risk
Cyberonics is subject to the risk of foreign exchange rate fluctuations. The Company conducts
significant operations in foreign markets and the majority of international sales are in Euros.
Any fluctuation in the U.S. dollar to Euro exchange rate will have a noticeable impact on sales.
Liquidity Risk and Credit Risk
The current ratio measures a company’s ability to pay short‐term obligations by comparing
current assets to current liabilities. This ratio measures the efficiency of the Company’s
operating cycle. As shown in Table 6, Cyberonics Inc. has a current ratio of 8.91, which is much
higher than its peer average. This number demonstrates the ability of Cyberonics to meet its
short‐term obligations, but it may also indicate that the Company is not using its current
assets efficiently because it may represent an excess of unused cash assets.
The quick ratio is more conservative than the current ratio because it only considers sources
of immediate cash. Cyberonics has a quick ratio of 8.13, which is significantly above its peer
average. The number suggests that the Company can cover its financial obligations easily.

19
Table 6: Current and Quick Ratio
Company Ticker Symbol Current Ratio Quick Ratio Debt/Equity
Medtronic MDT 3.82 3.48 66.5%
Volcano Corp. VOLC 4.00 3.26 134.2%
Greatbatch GB 3.96 2.43 33.0%
Masimo Corp. MASI 1.59 1.25 0.0%
Peer Average ‐ 3.34 2.61 58.4%
Cyberonics CYBX 8.91 8.13 0.0%
Source: Yahoo Finance July 31, 2014
FINANCIAL PERFORMANCE AND PROJECTIONS
Our $59.00 12‐month price target for Cyberonics, Inc. is derived from multiple assumptions
about the main revenue drivers of the Company including VNS Therapy pricing and unit sales.
Additionally, we made assumptions on how Cyberonics’ would handle important operating,
investing, and financing decisions in the near future. Forecasts and assumptions were derived
from the Company’s historical financial statements, industry metrics, and management
guidance supplied during our site visit.
Operating Assumptions
We considered several methodologies to forecast future revenues. We first considered a
regression model, but we could not find enough significant factors to proceed with a
regression. Thus, we decided on a price and quantity model that relied on historical financial
statements of the Company to determine appropriate growth rates for units sold and unit
prices. After reviewing the historical data, we used the previous two years’ average quarterly
compounded growth rates of 2.02% for VNS price growth and 0.63% for unit sales growth. Our
analysis revealed recurring sales from replacement devices as the main revenue growth
driver. Growth from recurring sales is expected to be between 11‐14% in the coming year,
according to Company management.
Investing & Financing Assumptions
Guidance from Cyberonics' management team was our main source for developing investing
and financing assumptions. According to management, the Company is actively pursuing
breakthrough developments in epilepsy and other medical conditions. Therefore, R&D
investment will remain around 15% of sales. The Company will implement its share
repurchase program buying $1 million in shares by April 2015. Also, Management suggests its
overall property plant and equipment expenditures would be around $10 million for the year
2015. Cyberonics has sufficient liquidity and capital resources to fund business activities for
the year 2015.

20
SITE VISIT
On October 3, 2014 our analyst team visited the corporate and manufacturing headquarters
of Cyberonics in Houston Texas. Once there, our team enjoyed an excellent visit with various
members of the organization, including presentations, discussions, and a tour of the
manufacturing floor.
Specifically, we enjoyed a presentation on the Company’s market strategies and their
marketing driven innovation design. Due to time constraints we moved directly to a question
and answer session with Chief Financial Officer Greg Brown, following this presentation.
During this meeting we had the opportunity to ask many clarifying questions as well as gain
key insights.
Interestingly we learned about executive opinion on emerging domestic competition. From
Food and Drug Administration approval in 1997 until patent expiration in 2011, Cyberonics
held 100% of the domestic market share for implantable epilepsy treatment devices. Despite
the strength of this position, implantable devices accounted for less than 1% of the epilepsy
treatment market. As competitors emerge, they primarily take market share from the
pharmaceutical portion of the market. Management believes that the increase in competition
is doing little to decrease Company revenue and rather serves to increase awareness of the
technology.
We also discussed the new manufacturing plant in Costa Rica that will begin production in the
near future. This plant will eventually produce 100% of international products. Management
cited tax advantages of foreign production and the appeal of a plant outside of the Houston
hurricane zone as reasons for the expansion. The foreign plant also opens up markets such as
China, which require products to be approved in their manufacturing country of origin before
marketing. This new plant allows Cyberonics to market new products sooner, due to reduced
regulatory requirements in Costa Rica.
Our visit ended with a prompt, yet engaging visit to the manufacturing floor. All of Cyberonics
devices are produced on site in Houston. As such, we observed expert technicians producing
high‐tech components in sterile laboratory conditions.

21
Site Visit Photo: October 3, 2014
INDEPENDENT OUTSIDE RESEARCH
In order to create a reliable report we conducted in‐depth research on Cyberonics Inc. and its
competitors by using several research platforms. Our research sources included Bloomberg,
Thompson One Banker, Yahoo Finance, Seeking Alpha, and Google Finance.
We found additional insight by researching academic papers on the condition of the epilepsy
and medical device industry. One such paper, titled Vagus Nerve Stimulation Therapy for the
Treatment of Epilepsy, by Steven Karcheski, MD, Assistant Professor of Neurology, Weill
Cornell Medical College, and Steven Schachter, MD, Professor of Neurology, Harvard Medical
School, attempted to validate VNS Therapy as an effective treatment option for patients with
refractory epilepsy. The paper also details the cost effectiveness of the VNS procedure, which
reduces direct medical care costs of the beneficiary. We found this source beneficial to our
understanding of the attitudes surrounding business operations.
Link: http://www.uptodate.com/contents/vagus‐nerve‐stimulation‐therapy‐for‐the‐
treatment‐of‐epilepsy#H16

22

ANOTHER WAY TO LOOK AT IT
ALTMAN Z‐SCORE
The Altman Z‐Score forecasts the likelihood that a company will go bankrupt within the next
two years. The Altman Z‐Score is a five factor model, which considers:
 Working capital/total assets
 Retained earnings/total assets
 Earnings before interest and taxes/total assets
 Market value equity/book value of total liabilities
 Sales/total assets
According to Altman, a Z‐Score above 2.99 shows a company is within the safe zone in terms
of bankruptcy or financial distress. Z‐Scores below 1.80 show a company is within the distress
zone, which means the probability of bankruptcy within two years is high. The Z‐Score model
is accurate, with real world applications successfully predicting 72% of corporate bankruptcies
prior to a company’s actual Chapter 11 bankruptcy filings.
Table 7 shows that Cyberonics’ Z‐Scores have been consistently in the safe zone for the past
five years. Although Cyberonics fell within the distress zone in 2008, its Z‐Score steadily
improved over the following years, culminating with a score of 30 in 2014. Such high scores
can be attributed to Cyberonics’ debt free structure, and suggests that the Company has a
very low probability of bankruptcy based on its financial figures only.
Table 7: 10 Years Historical Altman Z‐Scores
Year Ending 2010 2011 2012 2013 2014
Z Score 8.36 18.25 24.74 23.80 30.23
Zone Safe Zone Safe Zone Safe Zone Safe Zone Safe Zone
Source: Bloomberg November 11, 2014

23
PETER LYNCH EARNINGS MULTIPLE VALUATION
Peter Lynch, author of the best‐selling book One Up On Wall Street, developed a powerful
charting tool that greatly simplified his investment decisions. Known as the "Peter Lynch
Chart," this simple graph plots the stock price against its "earnings line," a theoretical price
equal to 15 times the earnings per share. An analyst or investor can chart a company’s price as
compared to its theoretical price in order to determine if the stock would be a good
investment. Lynch would advocate selling the stock when it traded above the theoretical
price, and buying the stock if it traded below the theoretical price.
Figure 3 demonstrates the earnings to price relationship for Cyberonics over the past 10
years. At its current price of $55.01, as on Nov 20, 2014, Cyberonics is trading at 23x earnings.
Peter lynch would hold off on purchasing the company at this time.
Figure 4: Peter Lynch Chart

Source: Bloomberg November 4, 2014

24
WWBD?
What Would Ben (Graham) Do?

Mr. Ben Graham, the father of fundamental equity analysis, formulated an eight‐hurdle
analysis framework to identify stocks that are undervalued and exhibit high growth potential.
According to Graham, a company is attractive if it passes four of the eight criteria.
Although Cyberonics does not pass the first four hurdles, its passes the fifth, sixth, and
seventh hurdles because of solid debt to equity and current ratios and strong earnings
growth over the past five years. As shown in Figure 5, even though Cyberonics fails as a value
investment according to Ben Graham’s criteria, the Company does exhibit some positive
signs both in terms of price to earnings and low risk levels.
Figure 5: Ben Graham Dial

25
Earnings per share (ttm) 2.20$ Price: 51.99$
Earnings to Price Yield 4.23%
10 Year Treasury (2X) 5.60%
P/E ratio as of 10/23/09 (53.1)
P/E ratio as of 10/29/10 (49.1)
P/E ratio as of 10/28/11 29.1
P/E ratio as of 10/26/12 32.8
P/E ratio as of 10/25/13 34.7
Current P/E Ratio 23.7
Dividends per share (ttm) ‐$ Price: 51.99$
Dividend Yield Nil
1/2 Yield on 10 Year Treasury 1.40%
Stock Price 51.99$
Book Value per share as of 10/24/14 10.00$
150% of book Value per share as of 10/24/14 15.00$
Interest‐bearing debt as of 10/24/14 ‐$
Book value as of 10/24/14 264,324$
Current assets as of 10/24/14 214,542$
Current liabilities as of 10/24/14 26,695$
Current ratio as of 10/24/14 8.0
EPS for year ended 10/25/13 1.67$
EPS for year ended 10/29/10 (0.56)$
EPS for year ended 10/25/13 1.67$ 18%
EPS for year ended 10/26/12 1.41$ 38%
EPS for year ended 10/28/11 1.02$ ‐283%
EPS for year ended 10/29/10 (0.56)$ ‐176%
Stock price data as of November 4, 2014
Yes
Yes
No
Hurdle # 7: Earnings Growth of 7% or Higher over past 5 years
Hurdle # 8: Stability in Growth of Earnings
CYBERONICS INC. (CYBX)
Ben Graham Analysis
Hurdle # 1: An Earnings to Price Yield of 2X the Yield on 10 Year Treasury
Hurdle # 2: A P/E Ratio Down to 1/2 of the Stocks Highest in 5 Yrs
No
No
Hurdle # 3: A Dividend Yield of 1/2 the Yield on 10 Year Treasury
Hurdle # 4: A Stock Price less than 1.5 BV
Hurdle # 5: Total Debt less than Book Value
Hurdle # 6: Current Ratio of Two or More
No
No
Yes

Cyberonics Incorporated (CYBX) BURKENROAD REPORTS (www.burkenroad.org)November 4, 2014
26
CYBERONICSINC.(CYBX)
AnnualandQuarterlyEarnings
Inthousands
Fortheperiodended
Netsales
Costofsales
Grossprofit
Operatingexpenses:
Selling,generalandadministrative
Researchanddevelopment
Litigationsettlement
Totaloperatingexpenses
Income(loss)fromoperations
Interestincome
Interestexpense
Gainonearlyextinguishmentofdebt
Impairmentofinvestment
2012A
218,503$
19,656
198,846
102,569
35,335
137,904
60,943
326
(297)
(4)
2013A
254,320$
21,907
232,413
112,515
41,551
154,067
78,346
84
(119)
(4,059)
1,326
2014A25‐Jul‐14A24‐Oct‐14E23‐Jan‐15E24‐Apr‐15E2015E24‐Jul‐15E23‐Oct‐15E22‐Jan‐16E22‐Apr‐16E2016E
282,014$72,004$73,923$75,892$77,915$299,733$79,991$82,122$84,310$86,557$332,980$
27,3556,4107,0497,2377,43028,1267,6287,8318,0398,25431,751
254,65965,59466,87468,65670,485271,60872,36374,29176,27178,303301,229
120,64233,02833,90834,81135,739137,48536,69137,66938,67239,703152,735
46,56310,56311,38511,68812,00045,63612,31912,64812,98513,33151,282
7,443
174,64843,59045,29346,49947,738183,12149,01050,31651,65753,034204,018
80,01222,00321,58122,15622,74788,48723,35323,97524,61425,27097,211
1623838383815138383838151
2016E2015E
Otherincome(expense),net
Income(loss)beforeincometaxes
Incometaxexpense(benefit)
Netincome(loss)
Earnings(loss)percommonshare
Basic
Adjustmentfornonrecurringitems
Adjustedbasic
Diluted
Adjustmentfornonrecurringitems
Adjusteddiluted
Weightedaveragesharesoutstanding:
Basic
Diluted
(547)
60,421
24,344
36,078$
1.30$
1.30$
1.28$
1.28$
27,827
28,307
(304)
75,275
28,917
46,358$
1.68$
0.03$
1.65$
1.66$
0.03$
1.63$
27,604
28,009
(295)171(74)(74)(74)(50)171(74)(74)(74)(50)
79,87922,21221,54522,12022,71088,58723,56123,93924,57825,23397,311
24,9888,6948,0828,2988,51933,5928,8388,9809,2209,46636,503
54,890$13,518$13,463$13,822$14,191$54,995$14,723$14,959$15,358$15,768$60,808$
2.02$0.51$0.51$0.53$0.55$2.16$0.59$0.61$0.63$0.65$2.58$
2.02$0.51$0.51$0.53$0.55$2.16$0.59$0.61$0.63$0.65$2.58$
2.00$0.50$0.50$0.52$0.54$2.14$0.59$0.60$0.62$0.65$2.55$
2.00$0.50$0.50$0.52$0.54$2.14$0.59$0.60$0.62$0.65$2.55$
27,14326,67426,54926,29326,03325,46624,90024,64924,40524,16423,595
27,46626,91526,79026,53426,27425,70725,14224,89124,64624,40523,837
SELECTEDCOMMON‐SIZEAMOUNTS(%oftotalrevenueunlessotherwisenoted)
Costofsales9.06%8.66%9.75%8.90%9.54%9.54%9.54%9.38%9.54%9.54%9.54%9.54%9.54%
47.26%
16.17%
44.50%
16.43%
43.00%45.87%45.87%45.87%45.87%45.87%45.87%45.87%45.87%45.87%45.87%
16.60%14.67%15.40%15.40%15.40%15.23%15.40%15.40%15.40%15.40%15.40%
Income(loss)fromoperations28.08%30.99%28.52%30.56%29.19%29.19%29.19%29.52%29.19%29.19%29.19%29.19%29.19%
Income(loss)beforeincometaxes‐0.25%‐0.12%‐0.11%30.85%29.15%29.15%29.15%‐0.02%29.46%29.15%29.15%29.15%‐0.02%
Netincome(loss)11.22%11.44%8.91%18.77%18.21%18.21%18.21%11.21%18.41%18.22%18.22%18.22%10.96%
SELECTEDYEARTOYEARCHANGES
Netsales
Costofsales
14.72%
‐14.61%
16.39%
16.51%
276.78%4.55%5.45%11.29%4.10%6.28%11.09%11.09%11.09%11.09%11.09%
274.81%‐2.04%1.77%12.02%0.07%6.84%18.99%11.09%11.09%11.09%11.09%
14.40%
23.54%
9.70%
17.59%
273.80%12.70%14.42%18.30%10.73%13.96%11.09%11.09%11.09%11.09%11.09%
296.88%‐11.79%‐2.30%4.34%2.28%‐1.99%16.63%11.09%11.09%11.09%12.37%
Income(loss)fromoperations23.90%28.56%241.67%61.74%‐1.40%5.00%‐2.87%10.59%6.13%11.09%11.09%11.09%9.86%
Income(loss)beforeincometaxes24.16%24.58%241.90%64.33%‐1.59%4.80%‐2.79%10.90%6.08%11.11%11.11%11.11%9.85%
Netincome(loss)‐22.79%28.49%197.86%55.85%‐3.06%‐0.56%‐22.99%0.19%8.91%11.11%11.11%11.11%10.57%

27
AnnualandQuarterlyBalanceSheets
Inthousands
Asoftheendof
Assets
Currentassets
Cashandcashequivalents
Restrictedcash
Short‐termmarketablesecurities
Accountsreceivable,net
Inventories
Deferredtaxassets
Othercurrentassets
Totalcurrentassets
Propertyandequipment,net
Intellectualproperty,net
Long‐terminvestments
Deferredtaxassets
Otherassets
Totalassets
LiabilitiesandShareholders'Equity
Currentliabilities
27‐Apr‐12A
96,654$
29,267
14,386
16,994
3,802
161,103
22,161
4,510
9,509
14,266
361
211,908$
26‐Apr‐13A
120,709$
100
15,000
39,450
17,718
10,298
4,084
207,358
28,556
9,220
10,588
7,825
496
264,043$
25‐Apr‐14A25‐JulA24‐OctE23‐JanE24‐AprE24‐Apr‐15E24‐JulE23‐OctE22‐JanE22‐AprE22‐Apr‐16E
103,299$107,679$106,807$107,260$109,351$109,351$99,803$105,546$105,557$106,873$106,873$
25,02925,04828,17228,17228,17228,17228,17228,17228,17228,17228,172
50,67448,29745,62346,83952,97452,97453,28250,68452,03458,85058,850
17,63018,68619,73120,25717,64217,64222,23421,92022,50419,59919,599
17,2089,4468,9277,2595,7595,7595,7615,3104,7934,7294,729
6,5915,9425,2815,2815,2815,2815,4475,4475,4475,4475,447
220,431215,098214,542215,069219,179219,179214,698217,078218,507223,669223,669
39,53540,08841,37842,62344,50144,50144,96546,07447,13748,83548,835
11,65511,33011,29311,25511,21511,21511,17111,12611,07911,03211,032
15,94415,94415,94415,94415,94415,94415,94415,94415,94415,94415,944
5,7716,2197,8506,4545,1985,1985,2004,8224,3904,3364,336
8561,244641641641641641641641641641
294,191$289,923$291,649$291,986$296,680$296,680$292,619$295,685$297,698$304,457$304,457$
2016E2015E
Accountspayable
Accruedliabilities
Convertiblenotes
4,886$
18,146
4
8,026$
21,000
7,570$6,034$5,606$5,754$6,720$6,720$5,750$6,223$6,388$7,461$7,461$
22,32818,11621,08921,64625,27925,27921,63023,40924,02928,06728,067
Totalcurrentliabilities23,03729,02529,89824,15026,69527,40031,99931,99927,38029,63230,41735,52735,527
Otherlong‐termliabilities
Totalliabilities
Shareholdersequity(deficit):
Commonstock
Additionalpaid‐incapital
Commonstockwarrants
5,402
28,439
306
321,961
25,200
5,450
34,475
313
380,159
5,1941,4491,4491,4491,4491,4491,4491,4491,4491,4491,449
35,09225,59928,14428,84833,44833,44828,82931,08131,86636,97636,976
318320320320320320320320320320320
426,867432,444436,251440,151444,144444,144448,070452,015455,974459,944459,944
Treasurystock
Accumulatedothercomprehensiveincome(loss)
Accumulateddeficit
Totalshareholder'sequity(deficit)
Totalliabilitiesandstockholders'equity
SELECTEDCOMMONSIZEBALANCESHEETAMOUNTS(%ofnetsalesunlessotherwiseindicated)
Inventories
Othercurrentassets
(83,151)
422
(81,268)
183,469
211,908$
13.39%
6.58%
1.74%
(116,161)
168
(34,911)
229,568
264,043$
15.51%
6.97%
1.61%
(188,519)(202,302)(220,391)(238,481)(256,571)(256,571)(274,661)(292,750)(310,840)(328,930)(328,930)
455364364364364364364364364364364
19,97933,49846,96160,78474,97574,97589,698104,657120,015135,783135,783
259,100264,324263,505263,138263,231263,231263,791264,605265,833267,481267,481
294,191$289,923$291,649$291,986$296,679$296,679$292,619$295,686$297,699$304,457$304,457$
17.97%67.08%61.72%61.72%67.99%17.67%66.61%61.72%61.72%67.99%17.67%
6.25%25.95%26.69%26.69%22.64%5.89%27.80%26.69%26.69%22.64%5.89%
2.34%8.25%7.14%6.96%6.78%1.76%6.81%6.63%6.46%6.29%1.64%
Propertyandequipment,net10.14%11.23%14.02%55.67%55.98%56.16%57.12%14.85%56.21%56.10%55.91%56.42%14.67%
Accountspayable
Accruedliabilities
2.24%
8.30%
3.16%
8.26%
2.68%8.38%7.58%7.58%8.62%2.24%7.19%7.58%7.58%8.62%2.24%
7.92%25.16%28.53%28.52%32.45%8.43%27.04%28.51%28.50%32.43%8.43%
Otherlong‐termliabilities2.47%2.14%1.84%2.01%1.96%1.91%1.86%0.48%1.81%1.76%1.72%1.67%0.44%
SELECTEDCOMMONSIZEBALANCESHEETAMOUNTS(%oftotalassets)
Totalcurrentassets
Propertyandequipment,net
Otherassets
76.02%
10.46%
0.17%
78.53%
10.81%
0.19%
74.93%74.19%73.56%73.66%73.88%73.88%73.37%73.42%73.40%73.46%73.46%
13.44%13.83%14.19%14.60%15.00%15.00%15.37%15.58%15.83%16.04%16.04%
0.29%0.43%0.22%0.22%0.22%0.22%0.22%0.22%0.22%0.21%0.21%
Totalcurrentliabilities10.87%10.99%10.16%8.33%9.15%9.38%10.79%10.79%9.36%10.02%10.22%11.67%11.67%
Otherlong‐termliabilities
Totalliabilities
2.55%
13.42%
2.06%
13.06%
1.77%0.50%0.50%0.50%0.49%0.49%0.50%0.49%0.49%0.48%0.48%
11.93%8.83%9.65%9.88%11.27%11.27%9.85%10.51%10.70%12.14%12.14%
Totalshareholder'sequity(deficit)86.58%86.94%88.07%91.17%90.35%90.12%88.73%88.73%90.15%89.49%89.30%87.86%87.86%

28
AnnualandQuarterlyStatementsofCashFlows
Inthousands
Fortheperiodended
Cashflowsfromoperatingactivities:
Netincome(loss)
Adjustments:
Depreciation
Amortization
Gainonearlyextinguishmentofdebt
2012A
36,078$
3,475
4
2013A
46,358$
3,771
868
2014A25‐Jul‐14A24‐Oct‐14E23‐Jan‐15E24‐Apr‐15E2015E24‐Jul‐15E23‐Oct‐15E22‐Jan‐16E22‐Apr‐16E2016E
54,890$13,519$13,463$13,822$14,191$54,995$14,723$14,959$15,358$15,768$60,808$
4,2881,2361,2101,2561,3075,0091,3521,3911,4361,4885,667
1,3143253213213211,2863253253253251,299
2016E2015E
Unrealized(gain)lossinforeigncurrencytransactions
Stock‐basedcompensation
Deferredincometaxes
Deferredlicenserevenueamortization
Impairmentofinvestment
Amortizationoffinancingcostsandotheritems
1,779
11,102
22,666
(1,494)
1,254
136
11,683
22,421
(1,494)
4,059
(1,326)
72(160)(160)
11,2403,5122,8102,8102,81011,9422,8102,8102,8102,81011,240
(5,201)3,402(1,112)3,0632,7568,109(4)8299501171,892
(1,468)
Changeinoperatingassetsandliabilities:
Inventories
Othercurrentassets
Otherassets
(1,247)
682
(452)
52
(10,185)
(3,396)
(305)
(100)
(10,656)2,1292,674(1,216)(6,135)(2,548)(308)2,598(1,351)(6,816)(5,876)
254(1,057)(1,046)(526)2,615(14)(4,592)314(584)2,905(1,957)
(2,626)238661899(165)(165)
2,088603603
Accountspayableandaccruedliabilities1,1276,564(0)(5,046)2,5457054,6002,803(4,619)2,2527855,1103,528
Netcashprovidedby(usedin)operatingactivities
Cashflowsfrominvestingactivities
Purchaseofshort‐termmarketablesecurities,net
Restrictedcash
75,02679,054
(15,000)
(100)
54,19618,09822,12720,23522,46582,9249,52225,47719,72921,70776,436
(9,994)6(3,124)(3,118)
Intellectualproperty(500)(4,600)(3,839)(283)(282)(281)(847)(280)(279)(278)(277)(1,115)
Investmentinequity
Acquisitionoflandandbuilding
Purchasesofpropertyandequipment
Long‐terminvestments
Netcash(usedin)providedbyinvestingactivities
Cashflowsfromfinancingactivities
(4,000)
(11,712)
(5,772)
(21,984)
(6,588)
(9,705)
(35,993)
(15,222)(1,816)(2,500)(2,500)(3,185)(10,001)(1,816)(2,500)(2,500)(3,185)(10,001)
(5,356)
(34,412)(1,809)(5,908)(2,782)(3,466)(13,965)(2,096)(2,779)(2,778)(3,462)(11,115)
Repurchase/maturityofconvertiblenotes(7,044)
Proceedsfromexerciseofoptionforcommonstock
Realizedexcesstaxbenefits‐stockcompensationbased
Cashsettlementofshare‐basedcompensationplanshareunits
Purchaseoftreasurystock
Netcash(usedin)providedbyfinancingactivities
Effectofexchangeratechanges
Net(decrease)increaseincashandcashequivalents
Cashandcashequivalents,beginning
Cashandcashequivalents,ending
10,773
(50,445)
(46,716)
1,014
7,340
89,314
96,654
9,743
4,417
(33,009)
(18,850)
(156)
24,055
96,654
120,709
9,7371,5109981,0901,1824,7801,1161,1351,1491,1604,561
26,6781,2651,265
(1,323)(786)(786)
(72,359)(13,782)(18,090)(18,090)(18,090)(68,051)(18,090)(18,090)(18,090)(18,090)(72,359)
(37,267)(11,794)(17,092)(17,000)(16,907)(62,793)(16,974)(16,955)(16,940)(16,929)(67,798)
73(114)(114)
(17,409)4,380(872)4532,0916,051(9,547)5,743111,316(2,478)
120,709103,299107,680106,807107,260103,299109,35099,803105,546105,557109,350
103,299107,680106,807107,260109,351109,35099,803105,546105,557106,873106,873
Operatingcashflowpershareexcluding
workingcapitalchanges
Operatingcashflowpershareincluding
workingcapitalchanges
2.60$
2.65$
3.09$
2.82$
1.98$0.89$0.72$0.76$0.58$3.06$0.75$0.92$0.79$0.56$3.15$
1.97$0.67$0.83$0.76$0.86$3.23$0.38$1.02$0.80$0.89$3.21$

29
Ratios
Fortheperiodended
ProductivityRatios
Receivablesturnover
2012A
6.88
2013A
6.76
2014A25‐JulA24‐OctE23‐JanE24‐AprE2015E24‐JulE23‐OctE22‐JanE22‐AprE2016E
1.501.331.421.491.415.031.391.431.491.415.24
2016E2015E
Inventoryturnover1.401.361.550.350.370.360.391.600.380.350.360.391.80
Workingcapitalturnover1.701.470.370.340.350.370.381.340.380.400.410.421.44
Netfixedassetturnover11.569.171.981.651.641.631.626.441.711.631.641.636.46
Totalassetturnover0.990.980.240.220.230.240.240.870.250.250.260.260.92
#ofdaysSalesinA/R53.5761.79273.5767.0062.0862.0868.3972.4367.0062.0862.0868.3970.99
#ofdaysCostofSalesinInventory266.40294.40234.60265.26254.73254.73216.08228.17265.26254.73254.73216.08202.25
#ofdayscash‐basedexpensesinA/PandAccruedXP54.5261.40216.2545.0747.5147.5154.0657.2045.0747.5147.5154.0656.48
LiquidityMeasures
Currentratio6.997.147.378.918.047.856.857.377.847.337.186.306.85
Quickratio5.475.525.156.465.715.625.075.155.595.275.184.665.07
Cashratio5.475.525.156.465.715.625.075.155.595.275.184.665.07
Cashflowfromoperationsratio3.262.720.550.750.830.740.701.810.350.860.650.612.59
Workingcapital138,066178,333190,534190,947187,847187,669187,180190,534187,318187,446188,090188,142187,180
FinancialRisk(Leverage)Ratios
Totaldebt/equityratio0.160.150.140.100.110.110.130.140.110.120.120.140.13
TotalLTdebt/equityratio0.030.020.020.010.010.010.010.020.010.010.010.010.01
Interestcoverageratio(Earnings=EBIT)205.38656.70NMNMNMNMNMNMNMNMNMNMNM
Totaldebtratio0.130.130.120.090.100.100.110.120.100.110.110.120.11
Profitability/ValuationMeasures
Grossprofitmargin91.63%91.93%90.08%91.10%90.46%90.46%90.46%90.77%90.46%90.46%90.46%90.46%90.62%
Operatingprofitmargin28.08%30.99%31.29%30.56%29.19%29.19%29.19%28.52%29.19%29.19%29.19%29.19%29.52%
Returnonassets17.88%19.48%6.60%4.63%4.63%4.74%4.82%18.66%5.02%5.09%5.18%5.24%18.61%
Returnonequity20.98%22.45%7.54%5.17%5.10%5.25%5.39%21.18%5.63%5.66%5.79%5.91%21.06%
Earningsbeforeinterestmargin18.41%21.27%27.41%20.29%20.19%20.19%20.19%21.61%20.06%20.18%20.18%20.18%20.21%
EBITDAmargin32.40%35.33%36.37%35.43%34.08%34.10%34.13%33.10%34.14%34.14%34.15%34.17%34.42%
EBITDA/Assets31.93%34.51%8.79%7.96%7.84%8.02%8.17%28.65%8.42%8.62%8.78%8.89%31.65%

THIS PAGE LEFT INTENTIONALLY BLANK

BURKENROAD REPORTS RATING SYSTEM
MARKET OUTPERFORM: This rating indicates that we believe forces are in place that would enable this
company's stock to produce returns in excess of the stock market averages over the next 12 months.
MARKET PERFORM: This rating indicates that we believe the investment returns from this company's stock will
be in line with those produced by the stock market averages over the next 12 months.
MARKET UNDERPERFORM: This rating indicates that while this investment may have positive attributes, we
believe an investment in this company will produce subpar returns over the next 12 months.

BURKENROAD REPORTS CALCULATIONS
 CPFS is calculated using operating cash flows excluding working capital changes.
 All amounts are as of the date of the report as reported by Bloomberg or Yahoo Finance unless
otherwise noted. Betas are collected from Bloomberg.
 Enterprise value is based on the equity market cap as of the report date, adjusted for long‐term
debt, cash, & short‐term investments reported on the most recent quarterly report date.
 12‐month Stock Performance is calculated using an ending price as of the report date.
The stock performance includes the 12‐month dividend yield.

2014‐2015 COVERAGE UNIVERSE
Amerisafe Inc. (AMSF)
Bristow Group Inc. (BRS)
The First Bancshares (FBMS)
CalIon Petroleum Company (CPE)
Cal‐Maine Foods Inc. (CALM)
Carbo Ceramics Inc. (CRR)
Cash America International Inc. (CSH)
Conn's Inc. (CONN)
Crown Crafts Inc. (CRWS)
Cyberonics Incorporated (CYBX)
Denbury Resources Inc. (DNR)
EastGroup Properties Inc. (EGP)
Era Group Inc. (ERA)
Evolution Petroleum Corp. (EPM)
Globalstar (GSAT)
Gulf Island Fabrication Inc. (GIFI)
Hibbett Sports (HIBB)
Hornbeck Offshore Services Inc. (HOS)
IBERIABANK Corp. (IBKC)
ION Geophysical Corp. (IO)
Key Energy Services (KEG)
Marine Products Corp. (MPX)
MidSouth Bancorp Inc. (MSL)
Newpark Resources Inc. (NR)
PetroQuest Energy Inc. (PQ)
Popeyes Louisiana Kitchen (PLKI)
Pool Corporation (POOL)
Powell Industries Inc. (POWL)
Rollins Incorporated (ROL)
RPC Incorporated (RES)
Ruth’s Hospitality Group Inc. (RUTH)
Sanderson Farms Inc. (SAFM)
SEACOR Holdings Inc. (CKH)
Sharps Compliance Inc. (SMED)
Stone Energy Corp. (SGY)
Sunoco LP (SUN)
Superior Energy Services Inc. (SPN)
Team Incorporated (TISI)
Vaalco Energy Inc. (EGY)
Willbros Group Inc. (WG)

PETER RICCHIUTI
Director of Research
Founder of Burkenroad Reports
Peter.Ricchiuti@tulane.edu

ANTHONY WOOD
Senior Director of Accounting
Awood11@tulane.edu
JERRY DICOLO
DAVID DOWTY
ELLIOTT EDWARDS
Associate Directors of Research

BURKENROAD REPORTS
Tulane University
New Orleans, LA 70118‐5669
(504) 862‐8489
(504) 865‐5430 Fax

To receive complete reports on any of the companies we follow, contact:
Peter Ricchiuti, Founder & Director of Research
Tulane University
Freeman School of Business
BURKENROAD REPORTS
Phone: (504) 862-8489
Fax: (504) 865-5430
E-mail: Peter.Ricchiuti@Tulane.edu
Please visit our web site at www.BURKENROAD.org
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Named in honor of William B. Burkenroad Jr., an alumnus and a longtime supporter
of Tulane’s business school, and funded through contributions from his family and
friends, BURKENROAD REPORTS is a nationally recognized program, publishing
objective, investment research reports on public companies in our region. Students
at Tulane University’s Freeman School of Business prepare these reports.
Alumni of the BURKENROAD REPORTS program are employed at a number of
highly respected financial institutions including:
ABNAMRO Bank ·Aegis Value Fund · Invesco/AIM Capital Management ·Alpha
Omega Capital Partners · American General Investment Management · Ameriprise
Financial · Atlas Capital · Banc of America Securities · Bank of Montreal ·
Bancomer · Barclays Capital · Barings PLC · Bearing Point · Bessemer Trust ·
Black Gold Capital· Bloomberg · Brookfield Asset Management · Brown Brothers
Harriman Capital · Blackrock Financial Management · Boston Consulting Group
· Buckingham Research · California Board of Regents · Cambridge Associates·
Canaccord Genuity · Cantor Fitzgerald · Chaffe & Associates · Citadel Investment
Group · Citibank · Citigroup Private Bank · City National Bank · Cornerstone
Resources · Credit Suisse · D. A. Davidson & Co. · Deutsche Banc · Duquesne
Capital Management · Equitas Capital Advisors· Factset Research · Financial
Models · First Albany · Fiduciary Trust · Fitch Investors Services · Forex Trading
· Franklin Templeton · Friedman Billings Ramsay · Fulcrum Global Partners ·
Gintel Asset Management · Global Hunter Securities · Goldman Sachs · Grosever
Funds · Gruntal & Co. · Guggenheim Securities , LLC · Hancock Investment
Services · Healthcare Markets Group · Capital One Southcoast · Howard Weil
Labouisse Friedrichs · IBERIABANK Capital Markets · J.P. Morgan Securities
· Janney Montgomery Scott · Jefferies & Co. · Johnson Rice & Co. · KBC
Financial · KDI Capital Partners · Key Investments · Keystone Investments ·
Legacy Capital · Liberty Mutual · Lowenhaupt Global Advisors · Mackay Shields
· Manulife/John Hancock Investments · Marsh & McLennan · Mercer Partners
· Merrill Lynch · Miramar Asset Management · Moodys Investor Services ·
Morgan Keegan · Morgan Stanley · New York Stock Exchange · Perkins Wolf
McDonnell · Piper Jaffray & Co. · Professional Advisory Services · Quarterdeck
Investment Services · RBC · Raymond James · Restoration Capital · Rice Voelker,
LLC · Royal Bank of Scotland· Sandler O'Neill & Partners · Sanford Bernstein
& Co. · Scotia Capital · Scottrade · Second City Trading LLC · Sequent Energy
· Sidoti & Co · Simmons & Co. · Southwest Securities · Stephens & Co. · Sterne
Agee · Stewart Capital LLC · Stifel Nicolaus · Sun-Trust Capital Markets ·
Susquehanna Investment Group · Thomas Weisel Partners · TD Waterhouse
Securities · Texas Employee Retirement System · Texas Teachers Retirement
System · ThirtyNorth Investments · Thornburg Investment Management · Tivoli
Partners · Tudor Pickering & Co. · Tulane University Endowment Fund · Turner
Investment Partners · UBS · Value Line Investments · Vaughan Nelson Investment
Management · Wells Fargo Capital Management · Whitney National Bank ·
William Blair & Co. · Zephyr Management

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