EXAC Exactech, Inc. (delisted)

Nine Months Revenue Up 5% to $185.1 Million; Net Income Up 5% to $11.4 Million or $0.81 EPDS

Exactech, Inc. (Nasdaq: EXAC), a developer and producer of bone and joint restoration products for hip, knee, shoulder and spine, announced today revenue of $57.9 million for the third quarter of 2014, a 4% increase over $55.7 million in the third quarter of 2013. Net income was $3.0 million, or $0.21 per diluted share, compared to $3.2 million, or $0.23 per diluted share, in the same quarter a year ago.

Third Quarter Segment Performance

• Extremity implant revenue increased 23% to $18.6 million
• Knee implant revenue decreased 2% to $18.1 million
• Hip implant revenue increased 4% to $10.2 million
• Biologic and Spine revenue decreased 10% to $5.4 million
• Other revenue decreased 9% to $5.6 million

Nine Months Highlights and Segment Performance

For the nine months of 2014, revenue was $185.1 million, an increase of 5% over $175.5 million for the comparable period last year. Net income for the first nine months of 2014 increased 5% to $11.4 million, or $0.81 per diluted share compared to $10.8 million, or $0.79 per diluted share for the first nine months of 2013. Nine month product revenues were as follows:

• Extremity implant revenue increased 22% to $57.3 million
• Knee implant revenue decreased 1% to $59.8 million
• Hip implant revenue increased 4% to $32.2 million
• Biologic and spine revenue decreased 6% to $17.7 million
• Other products revenue decreased 2% to $18.2 million

Management Comment

Exactech CEO and President David Petty said, “Total sales were up 4% to $57.9 million in the third quarter and up 5% to $185.1 million for the first nine months. Continuing double-digit strength in our shoulder segment resulted in our extremities implant revenue emerging as our largest revenue segment in the quarter with an increase of 23% to $18.6 million. This surpassed revenue in our knee segment, which decreased 2% to $18.1 million year over year in the quarter. Sluggish knee sales in Europe and the U.S. contributed to the knee revenue performance. Our hip segment continued to perform well with a 4% gain to $10.2 million, and we experienced weakness in our other segments. Net income slipped 6% to $3.0 million reflecting a $923,000 negative foreign exchange swing as compared to the third quarter of last year.

“U.S. sales for the quarter were up 2% to $40.0 million compared with $39.1 million in the third quarter a year ago. International sales increased 8% to $17.9 million. U.S. sales represented 69% of total sales and international sales were 31% of the total. For the first nine months of 2014, U.S. sales rose 5% to $123.8 million compared with $117.9 million in 2013, representing 67% of total sales. International sales increased 6% to $61.2 million and remained at 33% of total sales,” Petty said.

Chief Financial Officer Jody Phillips said, “Gross margins remained at 71% for each of the third quarters for 2014 and 2013. Total operating expenses for the third quarter increased 2% to $35.4 million and as a percentage of sales decreased to 61% from 62% resulting in an operating profit increase of 14% to $5.5 million. Our balance sheet remained strong with a further decrease in long-term debt reflecting healthy cash flow."

Looking forward, Exactech updated its 2014 revenue guidance to $247-$249 million and its diluted EPS target to $1.14–$1.16. For the fourth quarter ending December 31, 2014, the company said it anticipates revenues of $62-$64 million and diluted EPS of $0.33-$0.35 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 on Wednesday, October 22nd, 2014 at 10:00 a.m. Eastern Time. The call will cover Exactech’s third quarter 2014 results. Petty will open the conference call and a question-and-answer session will follow.

To participate in the call, dial 1-888-329-8877 any time after 9:50 a.m. Eastern on Wednesday, October 22nd. International and local callers should dial 1-719-457-2085. 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=111204. 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 SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands)     (unaudited)   (audited) September 30, December 31,   2014   2013 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 9,086 $ 6,011 Trade receivables, net of allowances of $821 and $993 46,342 59,109 Prepaid expenses and other assets, net 3,711 2,865 Income taxes receivable 550 1,331 Inventories, current 74,171 71,590 Deferred tax assets   1,521   1,653 Total current assets 135,381 142,559   PROPERTY AND EQUIPMENT: Land 2,208 2,215 Machinery and equipment 34,321 35,439 Surgical instruments 100,946 95,902 Furniture and fixtures 4,547 4,200 Facilities 19,251 19,187 Projects in process   1,133   852 Total property and equipment 162,406 157,795 Accumulated depreciation   (82,350 )   (76,127 ) Net property and equipment 80,056 81,668   OTHER ASSETS: Deferred financing and deposits, net 1,375 870 Non-current inventory 17,089 11,100 Product licenses and designs, net 8,664 9,457 Patents and trademarks, net 1,777 2,005 Customer relationships, net 317 669 Goodwill   13,224   13,514 Total other assets   42,446   37,615 TOTAL ASSETS $ 257,883 $ 261,842   LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $ 15,631 $ 16,254 Income taxes payable - 39 Accrued expenses 8,693 10,974 Other current liabilities 250 250 Current portion of long-term debt   3,000   3,000 Total current liabilities 27,574 30,517   LONG-TERM LIABILITIES: Deferred tax liabilities 2,890 4,200 Line of credit - 10,732 Long-term debt, net of current portion 21,000 23,250 Other long-term liabilities   432   719 Total long-term liabilities   24,322   38,901 Total liabilities 51,896 69,418   COMMITMENTS AND CONTINGENCIES   SHAREHOLDERS’ EQUITY: Common stock 138 136 Additional paid-in capital 74,315 69,175 Accumulated other comprehensive loss, net of tax (6,850 ) (3,902 ) Retained earnings   138,384   127,015 Total shareholders’ equity   205,987   192,424   TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 257,883 $ 261,842     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, 2014   2013 2014   2013 NET SALES $ 57,884 $ 55,650 $ 185,061 $ 175,510   COST OF GOODS SOLD   16,929   16,126   55,128   53,791 Gross profit 40,955 39,524 129,933 121,719   OPERATING EXPENSES: Sales and marketing 21,304 20,274 67,902 63,281 General and administrative 5,380 5,384 16,832 15,801 Research and development 4,464 5,068 13,521 13,523 Depreciation and amortization   4,289   3,963   12,735   11,992 Total operating expenses 35,437 34,689 110,990 104,597         INCOME FROM OPERATIONS 5,518 4,835 18,943 17,122   OTHER INCOME (EXPENSE): Interest income 5 2 13 5 Other income (loss) 3 18 53 69 Interest expense (253 ) (281 ) (860 ) (852 ) Foreign currency exchange (loss) gain   (652 )   271   (452 )   (312 ) Total other income (expenses) (897 ) 10 (1,246 ) (1,090 )         INCOME BEFORE INCOME TAXES 4,621 4,845 17,697 16,032   PROVISION FOR INCOME TAXES 1,610 1,653 6,328 5,255         NET INCOME $ 3,011 $ 3,192 $ 11,369 $ 10,777     BASIC EARNINGS PER SHARE $ 0.22 $ 0.24 $ 0.83 $ 0.80   DILUTED EARNINGS PER SHARE $ 0.21 $ 0.23 $ 0.81 $ 0.79     SHARES - BASIC 13,766 13,494 13,690 13,433   SHARES - DILUTED 14,064 13,712 13,989 13,632  

Exactech, Inc.Investor contactsJody Phillips, 352-377-1140Chief Financial OfficerorHawk AssociatesJulie Marshall or Frank Hawkins, 305-451-1888E-mail: exactech@hawkassociates.com