Extremities Revenues Reached $100.3 Million, up
16% vs. Prior Year
Exactech, Inc. (Nasdaq: EXAC), a developer and producer of bone
and joint restoration products and biologic solutions for
extremities, knee and hip, announced today that revenue for 2016
increased 7% to $257.6 million from $241.8 million in 2015.
Domestic revenue increased 5% to $176.8 million and international
revenue increased 10% to $80.8 million in 2016. Diluted earnings
per share for the year was $0.01 based on net income of $0.2
million, including the impact of $1.17 in earnings per share
charges related to impairment, restructuring and tax valuation
allowances, compared to 2015 net income of $14.8 million and
diluted earnings per share of $1.04. Net income and diluted
earnings per share for 2016 were significantly impacted by $14.5
million, net of taxes, in impairment and restructuring charges and
$2.2 million in tax valuation allowances or $1.17 per share that
were recognized in the fourth quarter of 2016. Excluding these
charges, 2016 adjusted net income and adjusted diluted earnings per
share were $16.8 million and $1.18, respectively; an 18% increase
compared to 2015 adjusted net income and adjusted diluted earnings
per share of $13.9 million and $0.98, respectively.
2016 Full Year Highlights and Segment Performance
• Extremity revenues increased 16% to $100.3 million from $86.7
million, a 16% constant currency increase
• Knee revenue increased 4% to $76.2 million from $73.1 million,
a 4% constant currency increase
• Hip revenue increased 8% to $46.7 million from $43.1 million,
a 7% constant currency increase
• Biologic & spine revenues decreased 14% to $19.5 million
from $22.8 million, a 14% constant currency decrease
• Other revenues decreased 9% to $14.8 million from $16.2
million, an 8% constant currency decrease
2016 Fourth Quarter Highlights and Segment
Performance
For the fourth quarter of 2016, revenue was $66.2 million, an
increase of 6% from $62.7 million in 2015 and an increase of 5% on
a constant currency basis. Domestic sales increased 1% to $45.3
million and international sales increased 17% to $20.9 million
compared to the fourth quarter of 2015. Net loss for the fourth
quarter of 2016 was $11.8 million, or $0.82 per diluted share,
compared to $4.1 million in net income, or $0.29 per diluted share
income, for the fourth quarter of 2015. Fourth quarter net income
was impacted by the entire $1.17 diluted earnings per share charges
noted above. Fourth quarter segment revenues were as follows:
• Extremity revenues increased 16% to $27.3 million from $23.4
million, a 17% constant currency increase
• Knee revenue increased 7% to $19.8 million from $18.5 million,
a 6% constant currency increase
• Hip revenue increased 2% to $11.2 million from $11.0 million,
unchanged constant currency
• Biologic & spine revenues decreased 28% to $4.3 million
from $6.0 million, a 27% constant currency decrease
• Other revenues decreased 6% to $3.7 million from $3.9 million,
a 5% constant currency decrease
Management Comment
Exactech CEO and President David Petty said, “We are pleased
with our strong performance in 2016 and we believe we are well
positioned for another solid year in 2017. The 2016 results reflect
excellent surgeon acceptance of Exactech innovations, including our
three new revision systems, as well as the positive impact of our
sales channel development strategy.
“Total sales for the year were up 7% to $257.6 million. Domestic
revenue increased 5% to $176.8 million, and international revenue
increased 10% to $80.8 million. For the fourth quarter of 2016,
total sales rose 6% to $66.2 million. Domestic sales were up 1% to
$45.3 million and International sales increased 17% to $20.9
million.
“We are enthusiastic about a return to double-digit growth in
our extremities business, Exactech’s largest operating segment,
which led the way with a 16% gain while reaching a milestone of
$100 million in annual revenue. Once again this underscores the
market’s support for our comprehensive Equinoxe® shoulder system
and its highly competitive range of glenoid solutions along with
the early acceptance of our Equinoxe Humeral Reconstruction
Prosthesis. We were also pleased to begin cases with our new
Vantage® Total Ankle System. We recorded another solid year in our
knee segment with a 4% gain as we ramped up the revision knee
rollout in the fourth quarter which should carry momentum into
2017. Our hip segment revenues rose 8% reflecting contributions
from the increased availability of the Alteon® Monoblock Revision
Hip Stem.
“Looking ahead, we plan to launch a new comprehensive knee
system, TruliantTM, during the second half of 2017. We are
expanding our ExactechGPS® computer assisted surgery system from
one to four applications including two additions to further support
knee surgery as well as our first application for the shoulder. We
will continue to execute our sales force development initiative,
which has been an important contributor to our growth. These plans,
in addition to our decision to exit the spine business and some
other strategic restructuring, position Exactech for improved
profitability in 2017 and beyond. We are proud of Exactech people
around the world who remain dedicated to making the company and our
products better than ever,” Petty said.
Chief Financial Officer Jody Phillips said, “We are optimistic
about 2017 based on the momentum in revenue growth in our large
joint segments in the latter portion of 2016. The $14.5 million net
of tax in impairment and restructuring charges, primarily related
to the spine business, were largely non-cash in nature and put us
in a solid position to focus on driving sales growth and operating
margin expansion going forward. Due to profitability challenges in
certain European and Asian markets, we also recognized $2.2 million
in tax valuation allowances during the fourth quarter that
significantly impacted our effective tax rate, net income and
diluted earnings per share. On an adjusted basis, excluding the
impact of the restructuring, impairment and tax valuation charges,
our fourth quarter and full year net income was within the range of
our original expectations for 2016 and adjusted diluted earnings
per share was $1.18 for the full year and $0.34 for the fourth
quarter. A detailed reconciliation of this adjusted basis income
and diluted earnings per share is provided later in this press
release. Full year gross margins decreased to 68.8% from 69.6%
primarily due to currency and pricing pressures in our
international business. During the first quarter of 2017, we are
anticipating an additional $0.9 million in charges related to the
divestiture of the spine assets which is expected to impact first
quarter diluted earnings per share by $0.04.”
Looking forward, Exactech confirmed 2017 revenue guidance of
$264-$272 million and diluted EPS target of $1.20-$1.28, including
the impact of the first quarter $0.04 diluted earnings per share
charge related to the spine business transition. On an adjusted
basis diluted EPS target is $1.24-$1.32. For the first quarter of
2017, the company anticipates revenues of $66-$68 million and
diluted EPS of $0.26-$0.28, including the first quarter charges. On
an adjusted basis diluted EPS target is $0.30-$0.32 for the first
quarter of 2017. 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 financial statements are below.
Conference Call
The company will hold a conference call with CEO David Petty and
key members of the management team today, Tuesday, February 21st at
10:00 a.m. Eastern Time. The call will cover Exactech’s fourth
quarter and year-end 2016 results. Mr. Petty will open the
conference call and a question-and-answer session will follow.
To participate in the call, dial 1-888-471-3836 any time after
9:50 a.m. Eastern on February 21. International and local callers
should dial 1-719-325-2475. A live and archived webcast of the call
will be available at http://www.hawkassociates.com/profile/exac.cfm
or http://public.viavid.com/index.php?id=122940. This call will be
archived for approximately 90 days.
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, in addition to more than 30
markets in Europe, Latin America, Asia and the Pacific. 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.
EXACTECH, INC. AND
SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited) (audited)
December 31, December 31, 2016
2015 ASSETS CURRENT ASSETS: Cash and cash equivalents
$ 13,052 $ 12,713 Trade receivables, net of allowances of $1,473
and $1,011 53,051 52,442 Prepaid expenses and other assets, net
3,075 2,552 Income taxes receivable 2,140 486 Inventories, current
65,264 71,429 Assets held for sale 6,477 — Total
current assets 143,059 139,622 PROPERTY AND EQUIPMENT: Land
4,474 4,494 Machinery and equipment 42,034 37,008 Surgical
instruments 132,134 123,533 Furniture and fixtures 4,700 4,655
Facilities 21,726 20,348 Projects in process 2,473
1,218 Total property and equipment 207,541 191,256 Accumulated
depreciation (100,234 ) (96,713 ) Net property and
equipment 107,307 94,543 OTHER ASSETS: Deferred financing
and deposits, net 968 858 Equity investment 2,047 — Deferred tax
asset 887 — Non-current inventory 15,723 8,995 Product licenses and
designs, net 9,102 11,121 Patents and trademarks, net 821 1,426
Customer relationships, net 476 92 Goodwill 13,819
18,850 Total other assets 43,843 41,342
TOTAL
ASSETS $ 294,209 $ 275,507
LIABILITIES AND
SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $
17,566 $ 13,932 Income taxes payable 780 603 Accrued expenses
11,832 9,498 Other current liabilities 2,927 792
Total current liabilities 33,105 24,825 LONG-TERM
LIABILITIES: Deferred tax liabilities 1,773 443 Long-term debt, net
of current portion 20,000 16,000 Other long-term liabilities
5,089 5,850 Total long-term liabilities 26,862
22,293 Total liabilities 59,967 47,118 COMMITMENTS AND
CONTINGENCIES SHAREHOLDERS’ EQUITY: Common stock 144 142
Additional paid-in capital 87,319 81,963 Treasury Stock (3,042 ) —
Accumulated other comprehensive loss, net of tax (8,611 ) (11,986 )
Retained earnings 158,432 158,270 Total shareholders’
equity 234,242 228,389
TOTAL LIABILITIES
AND SHAREHOLDERS’ EQUITY $ 294,209 $ 275,507
EXACTECH, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS
OF INCOME (in thousands, except per share amounts)
(Unaudited)
Three Month Periods Twelve Month Periods Ended
December 31, Ended December 31, 2016 2015 2016
2015 NET SALES $ 66,232 $ 62,732 $ 257,573 $
241,838 COST OF GOODS SOLD 20,843 19,066
80,251 73,639 Gross profit 45,389 43,666 177,322
168,199 OPERATING EXPENSES: Sales and marketing 23,614
23,194 92,452 87,095 General and administrative 5,442 5,680 22,182
22,483 Research and development 5,882 4,995 21,377 19,384
Restructuring and impairment 15,673 — 15,673
— Depreciation and amortization 4,682 4,243
18,008 16,940 Total operating expenses 55,293 38,112
169,692 145,902 INCOME (LOSS) FROM
OPERATIONS (9,904 ) 5,554 7,630 22,297 OTHER INCOME
(EXPENSE): Interest income (20 ) 2 15 9 Other income (loss) 333 377
448 468 Interest expense (297 ) (453 ) (1,013 ) (1,313 ) Foreign
currency exchange loss (997 ) (269 ) (332 )
(1,131 ) Total other income (expenses) (981 ) (343 ) (882 )
(1,967 ) INCOME (LOSS) BEFORE INCOME
TAX AND EQUITY IN LOSS OF INVESTEE (10,885 ) 5,211 6,748 20,330
PROVISION FOR INCOME TAXES 853 1,095 6,533 5,563
INCOME BEFORE EQUITY IN LOSS OF INVESTEE (11,738 )
4,116
215 14,767 EQUITY IN LOSS OF INVESTEE, NET OF TAX (53 ) —
(53 ) — NET INCOME (LOSS) $ (11,791 ) $
4,116 $ 162 $ 14,767 BASIC EARNINGS (LOSS) PER SHARE
$ (0.83 ) $ 0.29 $ 0.01 $ 1.05 DILUTED EARNINGS (LOSS) PER
SHARE $ (0.83 ) $ 0.29 $ 0.01 $ 1.04 SHARES - BASIC
14,198 14,100 14,078 14,022 SHARES - DILUTED 14,198 14,179
14,281 14,202
Non-GAAP Disclosure and Reconciliation
We present certain non-GAAP results as a supplement to our
financial results based on GAAP, as we believe it is useful to
exclude certain items in order to focus on what we regard to be a
more reliable indicator of the underlying operating performance of
our business. Because we operate internationally, we present the
percentage change in sales by reporting segment on a constant
currency basis, which is a non-GAAP financial measure. We calculate
this change on a constant currency basis by translating current
period sales at the comparable average historical exchange rates
for the same period in the prior year. We believe that presenting
the percentage change in sales on a constant currency basis assists
in the understanding of actual sales fluctuations by excluding the
impact of foreign currency fluctuations.
Additionally, we report on a non-GAAP basis adjusted net income
and adjusted diluted earnings per share excluding certain charges
related to restructuring activities, asset impairment charges, tax
valuation allowances, and asset sale gains or losses. We believe
the exclusion of these charges provides the reader with more
comparable financials to better analyze historical company trends.
The following items have been adjusted to assist in the
comparability:
- Discontinuation of an international
distributor and the gross margin impact of expected sales return
due to dissolution of the agreement;
- Restructuring related charges including
legal and compensation charges;
- Gain on sale of a product line in
2015
- Tangible and intangible asset
impairment of our spine assets as a result of annual testing and
subsequent sale of spine assets;
- Impairment of biologics assets related
to the abandonment of our cartilage project;
- Biologics and spine goodwill
impairment, resulting from the annual goodwill impairment
test;
- Tax benefit resulting from the
impairment and restructuring charges; and
- Tax valuation allowances related to
continued losses of certain foreign subsidiaries.
Three Months Ended December 31,
Twelve Months Ended December 31, 2016
2015 2016 2015 (in
thousands, except per share amounts) Net Income
Diluted EPS
Net Income Diluted EPS
Net Income
Diluted EPS Net
Income Diluted EPS
Reported $ (11,791 ) $ (0.83 ) $ 4,116
$ 0.29 $ 162 $ 0.01 $ 14,767
$ 1.04 Gross margin: Distributor sales return 406
0.03 — — 406 0.03 — — Spine inventory impairment 694 0.04 694 0.04
Gross margin adjustment 1,100 1,100 Operating expenses:
Restructuring expenses 1,274 0.07 — — 1,274 0.07 — — Sale of
product line — — — — — — (301 ) (0.02 ) Spine asset impairment
5,307 0.24 — — 5,307 0.24 — — Biologics impairment 1,539 0.11 — —
1,539 0.11 — — Goodwill impairment 7,553 0.53 — — 7,553 0.53 — —
Operating expense adjustment 15,673 — — 15,673 — — Tax
benefit on adjustments (2,260 ) — — (2,260 ) — — Tax valuation
allowances 2,156 0.15 — — 2,156 0.15 (536 ) (0.04 ) Total
adjustments 16,669 1.17 — — 16,669 1.17 (837 ) (0.06 ) Adjusted
results $ 4,878 $ 0.34 $ 4, 116 $ 0.29 $ 16,831 $ 1.18 $ 13,930 $
0.98
We also provide adjusted forward looking guidance on diluted
earnings per share for the first quarter and full year for 2017. We
believe this adjusted guidance will assist in comparative measures.
The following reconciles the guidance ranges to expected guidance
on a GAAP basis:
Three Months Ended Twelve
Months Ended March 31, 2017 December 31, 2017
Expected diluted EPS range on GAAP basis $0.26 - $0.28 $1.20 -
$1.28 Spine asset divestiture 0.06 0.06 Tax benefit of
adjustments (0.02) (0.02) Total adjustments 0.04 0.04
Adjusted total diluted EPS range $0.30-$0.32 $1.24-$1.32
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version on businesswire.com: http://www.businesswire.com/news/home/20170221005663/en/
Exactech, Inc.Investor contactsJody Phillips,
352-377-1140Executive Vice President of Finance & Chief
Financial OfficerorMedia contactPriscilla Bennett, 352-377-1140Vice
President, Corporate & Marketing CommunicationorHawk
AssociatesJulie Marshall or Frank Hawkins,
305-451-1888EXAC@hawkassociates.com
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