Exactech 2010 Revenue Up 7% to $190.5 Million

2010 Net Income $10.5 Million, Q4 EPS $0.21

GAINESVILLE, Fla.--()--Exactech, Inc. (Nasdaq:EXAC), a developer and producer of bone and joint restoration products for hip, knee, extremities, spine and biologic materials, announced today that revenue for 2010 increased 7% to $190.5 million from $177.3 million in 2009. Diluted earnings per share for the year was $0.80 based on net income of $10.5 million. This compares with net income of $8.3 million or $0.65 diluted EPS a year ago. Net income for 2010 and 2009 included pre-tax legal expenses and compliance costs of $1.3 million and $7.0 million, respectively, related to the Department of Justice (DOJ) inquiry and settlement. Excluding the impact of these expenses, 2010 net income was $11.3 million or $0.86 diluted EPS compared with $13.2 million or $1.03 diluted EPS in 2009.

2010 Fourth Quarter Highlights and Segment Performance

• Total revenue for the quarter increased 7% to $51.8 million

• Knee implant revenue decreased 2% to $20.6 million

• Hip implant revenue increased 21% to $8.2 million

• Biologic & spine segment revenues increased 7% to $7.4 million

• Extremity implant revenue increased 32% to $8.6 million

• Other revenues remained flat at $7.0 million

2010 Full Year Highlights and Segment Performance

• Revenue for the year increased 7% to $190.5 million

• Knee implant revenue increased 1% to $76.5 million

• Hip implant revenue increased 7% to $28.7 million

• Biologic & spine segment revenues increased 2% to $28.0 million

• Extremity implant revenue increased 32% to $30.0 million

• Other revenues increased 12% to $27.2 million

For the fourth quarter of 2010, revenue was $51.8 million, an increase of 7% over $48.3 million for the fourth quarter last year. Net income for the fourth quarter of 2010 was $2.7 million compared to $0.5 million for the same quarter of 2009. Diluted EPS was $0.21 for the fourth quarter of 2010 compared to $0.04 in the fourth quarter of 2009. Excluding legal and compliance costs of $0.5 million associated with the DOJ inquiry, diluted EPS for the fourth quarter of 2010 was $0.23, compared with $3.6 million in DOJ related costs and $0.25 of adjusted diluted EPS for the fourth quarter of 2009. A reconciliation of the adjusted net income and adjusted diluted EPS is included at the end of the attached financial statements.

Exactech Chairman and CEO Bill Petty said, “Exactech showed solid performance in 2010 with a number of important developments. Revenue for the year was up 7% to $190.5 million. Diluted earnings per share was $0.80 based on net income of $10.5 million. This compared with net income of $8.3 million or $0.65 diluted EPS in 2009.

“We were particularly pleased with the performance of our extremities and hip operating segments, which finished the year with strong numbers. Our shoulder business is the fastest growing extremities business in the industry and has become an increasingly important part of our operations with segment sales reaching $30 million in 2010, making it our second largest business segment. Knee business, our largest operating segment, was up only 1% during the year, reflecting industry softness as well as the impact of sales and marketing transitions in several overseas markets. We are confident these changes are going to provide us with improved results for the future. In the fourth quarter, the 2% decrease in knee sales also reflected challenging comparisons with the fourth quarter of 2009 when knee sales rose 24%.

“We reached a resolution of the Department of Justice investigation. We are pleased to finally have this phase of this issue behind us. There will be ongoing expense in 2011 related to government-required monitors, compliance activities, and associated legal fees.

“Exactech introduced a number of important new products in 2010. In the first quarter we received 510(k) clearance from the U.S. Food and Drug Administration (FDA) to market the Equinoxe® Platform Fracture Stem, the latest addition to our shoulder arthroplasty line. Full market launch began in the second half. Innovative new products like this have provided strong 32% growth for the Equinoxe line resulting in capture of over 5% of the shoulder market in just five years.

“On the acquisition front, we acquired several innovative spine product lines and related technology from VertiFlex, a leading developer of minimally invasive spinal surgery technologies. The VertiFlex technologies add a range of products that fit well with the current Exactech spine product portfolio and will help attract a higher quality sales organization to build our spine business. We also acquired Brighton Partners, the sole source supplier of the net compression molded polyethylene bearings used exclusively in Exactech’s Optetrak® knee replacement system. The strategic acquisition of the supply chain helps protect our proprietary technology.

“We were granted approval to market the Novation® primary hip replacement system in Japan, a robust orthopaedics market where hip replacement surgeries outnumber knee replacement procedures. The addition of the Novation hip line in Japan allows us to further leverage our investment into our Japanese distribution operation,” Petty said.

Exactech President David Petty said, “During the fourth quarter, sales rose 7% in both domestic and international operations. U.S. sales were $34.5 million, and international sales reached $17.3 million. International sales represented 33% of total sales for the fourth quarter in both 2010 and 2009.

“For the full year 2010, U.S. sales increased 8% to $132.0 million, and international sales were up 7% to $58.5 million. International sales represented 31% of total sales for both 2010 and 2009.

“We are continuing to build our direct operations in Germany and Spain that began in 2010, resulting in an international sales organization with direct operations in eight markets. Our investments in international sales organizations are being complemented with investments in our domestic sales channels as well, as we continue to increase the quality of our sales teams and increase the sales per rep,” Petty said.

Exactech CFO Jody Phillips said, “Gross margin percentage for the year increased to 66.4% compared to 63.3% for last year, primarily due to growth in the domestic market and transition of certain international distributors to higher margin direct sales operations. Total operating expenses in 2010 were $108.1 million, up 11% from $97.6 million in the comparable period last year. The increase in operating expenses was primarily due to variable expenses related to our sales growth and startup expenses incurred with our direct operations transitions during 2010. Fourth quarter 2010 operating expenses increased 13% to $31.1 million, which included $0.7 million in bad debt expenses as a result of our international direct transitions.”

Looking forward, the company released its 2011 revenue guidance of $202 - $210 million and diluted EPS of $0.86 - $0.94 on a GAAP basis and diluted EPS of $1.10 - $1.18 excluding the impact of the company’s projection of $5.0 million in compliance expenses for 2011. For the first quarter of 2011, the company said it anticipates revenues of $50.5 - $52.5 million and diluted EPS of $0.19 - $0.21 on a GAAP basis and diluted EPS of $0.26 - $.28 excluding the impact of $1.4 million in projected compliance related expenses. The foregoing statements regarding targets are forward-looking and actual results may differ materially. These are the company’s targets, not predictions of actual performance.

Exactech will hold a conference call on Monday, February 28, 2011 at 9:00 a.m. Eastern Time. To participate in the call, dial 1-877-941-1427 any time after 8:50 a.m. ET on February 28. International and local callers should dial 1-480-629-9664. 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=00008184. This call 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 and http://www.hawkassociates.com.

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

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.


As of December 31, 2010 and 2009
(in thousands, except share and per share amounts)
  (unaudited) (audited)
  2010   2009
Cash and cash equivalents $ 3,935 $ 2,889
Trade receivables, net of allowances of $2,751 and $835 39,796 33,753
Prepaid expenses and other assets, net 3,384 2,317
Income taxes receivable 1,544 389
Inventories, current 61,602 56,417
Deferred tax assets   2,278   1,703
Total current assets 112,539 97,468
Land 2,210 1,895
Machinery and equipment 27,155 24,322
Surgical instruments 60,077 43,713
Furniture and fixtures 3,583 3,051
Facilities 16,365 15,517
Projects in process   3,669   1,024
Total property and equipment 113,059 89,522
Accumulated depreciation   (44,377 )   (37,150 )
Net property and equipment 68,682 52,372
Deferred financing and deposits, net 881 1,159
Non-current inventory 9,191
Product licenses and designs, net 11,812 6,225
Patents and trademarks, net 1,938 2,057
Customer relationships, net 2,003 1,928
Goodwill   12,947   9,811
Total other assets   38,772   21,180
TOTAL ASSETS $ 219,993 $ 171,020
Accounts payable $ 15,855 $ 9,306
Income taxes payable 525
Accrued expenses 8,847 11,370
Other current liabilities 296 1,354
Current portion of long-term debt   1,066   1,190
Total current liabilities 26,064 23,745
Deferred tax liabilities 6,175 1,989
Line of credit 37,556 7,794
Long-term debt, net of current portion 4,153 5,221
Other long-term liabilities   629   518
Total long-term liabilities   48,513   15,522
Total liabilities 74,577 39,267
Common stock, $.01 par value; 30,000,000 shares authorized, 13,028,024 and 12,823,778 shares issued and outstanding 130 128
Additional paid-in capital 57,735 53,475
Accumulated other comprehensive loss, net of tax (2,525 ) (1,461 )
Retained earnings   90,076   79,611
Total shareholders’ equity   145,416   131,753
(in thousands, except per share amounts)
  Three Month Period   Twelve Month Period
Ended December 31, Ended December 31,
2010 2009 2010 2009
NET SALES $ 51,790 $ 48,341 $ 190,483 $ 177,310
COST OF GOODS SOLD   16,151   18,891   63,961   65,002
Gross profit 35,639 29,450 126,522 112,308
Sales and marketing 19,209 14,376 66,123 55,318
General and administrative 5,195 7,898 17,622 21,797
Research and development 3,567 3,041 13,631 11,533
Depreciation and amortization   3,125   2,287   10,744   8,930
Total operating expenses   31,096   27,602   108,120   97,578
INCOME FROM OPERATIONS 4,543 1,848 18,402 14,730
Interest income 2 2 5 13
Interest expense (183 ) (141 ) (641 ) (696 )
Other income (expense) 4 34 64 65
Foreign currency exchange (loss) gain   (278 )   (76 )   391   60



1,667 18,221 14,172
PROVISION FOR INCOME TAXES   1,379   1,173   7,756   5,845
NET INCOME $ 2,709 $ 494 $ 10,465 $ 8,327
BASIC EARNINGS PER SHARE $ 0.21 $ 0.04 $ 0.81 $ 0.65
DILUTED EARNINGS PER SHARE $ 0.21 $ 0.04 $ 0.80 $ 0.65
SHARES – BASIC 12,950 12,792 12,897 12,770
SHARES – DILUTED 13,121 12,984 13,091 12,906
Adjusted net income to exclude the effect of DOJ related expenses:
Net Income $ 2,709 $ 494 $ 10,465 $ 8,327
Adjustments for DOJ related expenses:
DOJ related expenses, pre-tax 489 3,573 1,284 7,018
Income tax benefit   189   794   483   2,103
  300   2,779   801   4,915
Adjusted net income - excluding DOJ related expense $ 3,009 $ 3,273 $ 11,266 $ 13,242
Diluted earnings per share $ 0.21 $ 0.04 $ 0.80 $ 0.65
Adjustment of DOJ related expenses, net   0.02   0.21   0.06   0.38
Adjusted diluted earnings per share $ 0.23 $ 0.25 $ 0.86 $ 1.03


Exactech, Inc.
Investor contacts:
Jody Phillips, 352-377-1140
Chief Financial Officer
Hawk Associates
Julie Marshall or Frank Hawkins, 305-451-1888

Release Summary

Exactech Q4 and Year 2010 Earnings


Exactech, Inc.
Investor contacts:
Jody Phillips, 352-377-1140
Chief Financial Officer
Hawk Associates
Julie Marshall or Frank Hawkins, 305-451-1888