Exactech Q3 Revenue $42.4M; Net Income $2.7M or $0.21 EPS

October 27, 2009 4:00 PM EDT

Q3 Revenue up 12%; Net Income up 28%

GAINESVILLE, Fla.--(BUSINESS WIRE)-- Exactech, Inc. (Nasdaq: EXAC), a developer and producer of bone and joint restoration products for hip, knee, shoulder, spine and biologic materials, announced today that total revenue for the third quarter of 2009 increased 12% to $42.4 million from $37.9 million in the third quarter of 2008. Diluted earnings per share for the quarter was $0.21 based on net income of $2.7 million. This compares with net income of $2.1 million or $0.16 diluted EPS a year ago. Net income for the quarter, excluding pre-tax legal expenses and costs of $845,000 related to the ongoing Department of Justice (DOJ) inquiry, was $3.3 million or $0.25 EPS.

Third Quarter Highlights and Segment Performance

-- Net income increased 28% to $2.7 million

-- Net income excluding DOJ inquiry costs was $3.3 million or $0.25 EPS

-- Hip implant revenue increased 24% to $6.8 million from $5.5 million

-- Knee implant revenue increased 4% to $17.3 million from $16.6 million

-- Biologic and spine revenue increased 7% to $6.5 million from $6.1 million

-- Extremity implant revenue increased 31% to $5.5 million from $4.2 million

-- Other products revenue increased 13% to $6.3 million from $5.5 million

Nine Months Highlights and Segment Performance

For the first nine months of 2009 revenue was $129.0 million, an increase of 6% over $121.4 million for the comparable period last year. Net income for the first nine months of 2009 was $7.8 million representing a 2% decrease from the first nine months of 2008. Net income for the nine months, excluding pre-tax legal expenses and costs of $3.4 million related to the ongoing Department of Justice (DOJ) inquiry, was $10.0 million or $0.77 diluted EPS.

First nine month product revenues were as follows:

-- Hip implant revenue increased 14% to $20.0 million from $17.5 million

-- Knee implant revenue decreased 2% to $54.7 million from $55.6 million

-- Biologic and spine revenue increased 5% to $20.5 million from $19.4 million

-- Extremity implant revenue increased 38% to $16.4 million from $11.8 million

-- Other products revenue increased 2% to $17.4 million from $17.1 million

Exactech Chairman and CEO Bill Petty said, "We are encouraged as we move into the fourth quarter of 2009. Our seasonally slow third quarter produced year over year revenue growth in all segments - and stellar growth in two of our five reporting segments. In fact, on a sequential basis, revenue in the third quarter exceeded second quarter sales in hips, extremities and other products segments. Our innovative new products such as the new Novation Element(R) hip products, Equinoxe(R) shoulder and LPI Instrumentation are driving growth. We continue to make substantial investments in new product development as we see attractive opportunities ahead of us."

"Hip revenue increased 24% to $6.8 million from $5.5 million in the third quarter of 2008. Another highly successful product segment is our extremity segment, which increased revenue 31% to $5.5 million from $4.2 million in the third quarter. Revenue from our knee implant product lines, our largest segment, increased 4% to $17.3 million from $16.6 million during the third quarter of 2009. Biologic and spine revenue increased 7% to $6.5 million from $6.1 million in the same quarter last year. Our other products segment sales turned around with a healthy growth increase of 13% to $6.3 million from $5.5 million a year ago," Petty said.

Exactech President David Petty said, "U.S. sales increased 15% to $30.2 million in the quarter compared to $26.3 million in the third quarter of 2008. International sales for the third quarter increased 5% to $12.2 million compared to $11.6 million a year ago. International sales represented 29% of total sales compared with 31% in the same quarter last year."

Chief Financial Officer Jody Phillips said, "Gross margin percentage for the quarter improved to 64.0% compared to 63.9% for the comparable quarter last year. Total operating expenses in the quarter were $22.7 million, up 12% from $20.3 million in the comparable quarter last year. General and administrative expenses decreased 6%, sales and marketing expenses increased 13% and research and development expenses increased 41% compared to the third quarter of 2008. We also significantly improved the balance sheet during the quarter reducing our total debt to $17.4 million as of the end of the third quarter compared to $23.2 million at the end of the second quarter."

Looking forward, Exactech increased its revenue targets for 2009 in the range of $171 million to $174 million and now targets diluted earnings per share for the year 2009 in the range of $1.00 to $1.02. For the fourth quarter ending December 31, 2009, the company targets revenue in the range of $42 million to $45 million and diluted earnings per share in the range of $0.22 to $0.24. These EPS target ranges exclude the impact of DOJ inquiry costs. The foregoing statements regarding targets for the quarter and full year are forward-looking and actual results may differ materially. These are the company's targets, not predictions of actual performance.

The company will hold a conference call on Wednesday, October 28 at 10:00 a.m. Eastern. To participate in the call, dial 1-877-941-1429 any time after 9:50 a.m. Eastern on October 28. International and local callers should dial 1-480-629-9666. While in conference, if callers should require operator assistance, they can press the star followed by the zero button. This will call an operator to the line.

A live webcast of the call will be available at http://viavid.net/dce.aspx?sid=00006BC4. A podcast will be available approximately one hour after the event ends and can be accessed at http://viavid.net/mp3/00006BC4.mp3. Both will be archived for approximately 90 days.

The financial statements follow.

About Exactech

Based in Gainesville, Fla., Exactech develops and markets orthopaedic implant devices, related surgical instruments and biologic materials and services to hospitals and physicians. The company manufactures many of its orthopaedic devices at its Gainesville facility. Exactech's orthopaedic products are used in the restoration of bones and joints that have deteriorated as a result of injury or diseases such as arthritis. Exactech markets its products in the United States and Australia, in addition to more than 30 markets in Europe, Asia and Latin America. Additional information about Exactech, Inc. can be found at http://www.exac.com. Copies of Exactech's press releases, SEC filings, current price quotes and other valuable information for investors may be found at http://www.exac.com http://www.hawkassociates.com.

An investment profile on Exactech may be found at http://www.hawkassociates.com/profile/exac.cfm.

Investors may contact Chief Financial Officer Jody Phillips at 352-377-1140 or Julie Marshall or Frank Hawkins, Hawk Associates Inc., at 305-451-1888, e-mail: exactech@hawkassociates.com. To receive future releases in e-mail alerts, sign up at http://www.hawkassociates.com/about/alert.

This release contains various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which represent the company's expectations or beliefs concerning future events of the company's financial performance. These forward-looking statements are further qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements. These factors include the effect of competitive pricing, the company's dependence on the ability of third party manufacturers to produce components on a basis which is cost-effective to the company, market acceptance of the company's products and the effects of government regulation. Results actually achieved may differ materially from expected results included in these statements.

EXACTECH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

                                              (unaudited)         (audited)

                                                September 30,     December 31,

                                                2009              2008

ASSETS

CURRENT ASSETS:

Cash and cash equivalents                     $ 3,328           $ 3,285

Accounts receivable, net of allowances of       31,729            31,750
$907 and $1,006

Prepaid expenses and other assets, net          2,726             2,193

Income taxes receivable                         453               359

Inventories                                     59,107            61,866

Deferred taxes                                  1,664             1,119

Total current assets                            99,007            100,572

PROPERTY AND EQUIPMENT:

Land                                            1,897             1,231

Machinery and equipment                         24,091            21,528

Surgical instruments                            44,923            38,012

Furniture and fixtures                          2,991             2,746

Facilities                                      15,537            13,551

Projects in process                             772               2,221

Total property and equipment                    90,211            79,289

Accumulated depreciation                        (37,680)          (32,950      )

Net property and equipment                      52,531            46,339

OTHER ASSETS:

Deferred financing and deposits, net            1,177             1,594

Other investments                               --                1,387

Product licenses and designs, net               5,520             3,382

Customer relationships, net                     2,040             2,418

Patents and trademarks, net                     2,135             2,272

Goodwill                                        9,850             9,556

Total other assets                              20,722            20,609

TOTAL ASSETS                                  $ 172,260         $ 167,520

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable                              $ 12,140          $ 13,065

Income taxes payable                            957               242

Accrued expenses and other liabilities          8,102             7,067

Current portion of long-term debt               1,183             1,415

Total current liabilities                       22,382            21,789

LONG-TERM LIABILITIES:

Deferred tax liabilities                        2,348             835

Line of credit                                  10,723            14,802

Long-term debt, net of current portion          5,521             7,610

Other long-term liabilities                     546               869

Total long-term liabilities                     19,138            24,116

Total liabilities                               41,520            45,905

SHAREHOLDERS' EQUITY:

Common stock                                    128               127

Additional paid-in capital                      52,767            51,223

Accumulated other comprehensive loss, net of    (1,272)           (1,019       )
tax

Retained earnings                               79,117            71,284

Total shareholders' equity                      130,740           121,615

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY    $ 172,260         $ 167,520

EXACTECH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(Unaudited)

                               Three Month Periods       Nine Month Periods

                               Ended September 30,       Ended September 30,

                               2009          2008        2009        2008

NET SALES                      $ 42,363      $ 37,934    $ 128,969   $ 121,420

COST OF GOODS SOLD               15,269        13,708      46,111      44,830

Gross profit                     27,094        24,226      82,858      76,590

OPERATING EXPENSES:

Sales and marketing              13,267        11,775      40,942      37,343

General and administrative       4,353         4,630       13,899      12,875

Research and development         2,932         2,086       8,492       7,028

Depreciation and amortization    2,131         1,800       6,643       5,412

Total operating expenses         22,683        20,291      69,976      62,658

INCOME FROM OPERATIONS           4,411         3,935       12,882      13,932

OTHER INCOME (EXPENSE):

Interest income                  1             6           11          9

Other income                     17            --          31          485

Interest expense                 (168      )   (210   )    (555    )   (809    )

Foreign currency exchange        128           (23    )    136         (75     )
gain (loss)

Total other expenses             (22       )   (227   )    (377    )   (390    )

INCOME BEFORE INCOME TAXES       4,389         3,708       12,505      13,542

PROVISION FOR INCOME TAXES       1,649         1,571       4,672       5,461

INCOME BEFORE EQUITY IN NET      2,740         2,137       7,833       8,081
LOSS OF OTHER INVESTMENTS

EQUITY IN NET LOSS OF OTHER      --            --          --          (98     )
INVESTMENTS

NET INCOME                     $ 2,740       $ 2,137     $ 7,833     $ 7,983

BASIC EARNINGS PER SHARE       $ 0.21        $ 0.17      $ 0.61      $ 0.65

DILUTED EARNINGS PER SHARE     $ 0.21        $ 0.16      $ 0.61      $ 0.63

SHARES - BASIC                   12,788        12,672      12,758      12,191

SHARES - DILUTED                 12,922        13,158      12,874      12,657

Adjusted net income to exclude the effect
of DOJ related expenses:

Net Income                     $ 2,740       $ 2,137     $ 7,833     $ 7,983

Adjustments for DOJ related
expenses:

DOJ related expenses, pre-tax    845           1,205       3,445       2,214

Income tax benefit               (321      )   (477   )    (1,309  )   (877    )

                                 524           728         2,136       1,337

Adjusted net income -          $ 3,264       $ 2,865     $ 9,969     $ 9,320
excluding DOJ related expense

Diluted earnings per share     $ 0.21        $ 0.16      $ 0.61      $ 0.63

Adjustment of DOJ related        0.04          0.06        0.16        0.11
expenses, net

Adjusted diluted earnings per  $ 0.25        $ 0.22      $ 0.77      $ 0.74
share

    Source: Exactech, Inc.

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