Exactech Q2 Revenue Up 19% to $31.6M YTD Sales Up 18% to $61.2M

GAINESVILLE, Fla. -- July 31, 2007 -- Exactech, Inc. (Nasdaq: EXAC), a developer and producer of bone and joint restoration products including orthopaedic implants and biologic materials, announced today that revenue for the second quarter of 2007 increased 19% to $31.6 million from $26.6 million in the second quarter of 2006. Diluted earnings per share for the quarter was $0.12 based on net income of $1.4 million. This compares with net income of $2.1 million or $0.18 diluted EPS a year ago.

The second quarter 2007 net income included a previously announced impairment charge of $1.5 million, which represented the current full carrying value of an asset related to the license and distribution agreement entered into during 2003 with Dimicron Corporation to develop polycrystalline diamond compact hip bearings. Excluding the impact of this impairment charge, the adjusted net income was $2.4 million or diluted earnings per share of $0.20, an increase of 15% compared to $2.1 million net income or $0.18 diluted EPS reported in the second quarter of  2006.

For the first six months of 2007, revenue was $61.2 million, an increase of 18% over $52.0 million for the comparable period last year. Also including the impairment charge taken in the second quarter, net income for the first six months was $3.3 million, or $0.28 per diluted share, compared to $3.7 million, or $0.31 per diluted share in the first half of 2006.

Exactech Chairman and CEO Bill Petty said, “Sales grew in all product lines during the quarter reflecting the acceptance of our new products and continuing success of our products across all segments. Our shoulder product sales, which we will now begin to report separately on a regular basis, jumped 86% from $1.3 million in the second quarter of 2006 to $2.3 million in the second quarter of 2007. Sales for this business unit increased 63% to $3.9 million for the first six months of 2007, compared to $2.4 million for the first six months of 2006. Sales of knee products, our largest business unit, increased 17% to $16.9 million from $14.4 million in the same quarter of 2006, and increased 15% from $28.3 million in the first six months of 2006 to $32.6 million for the first six months of this year. Hip product sales rose 18% to $5.4 million, compared with $4.6 million in the second quarter of 2006, and increased 30% to $10.9 million for the first six months of 2007, compared to $8.4 million for the first six months of 2006. Revenue from biologics increased 33% to $3.9 million during the quarter, up from $3.0 million in Q2 ’06 as we continued to see good results from our dental biologics and Optecure® lines. For the first six months of 2007, revenue from biologics increased 17% to $7.4 million, compared to $6.3 million for the first six months of 2006.”

Petty said, “U.S. sales grew 16% to $23.3 million from $20.1 million in the comparable quarter in 2006 while our international business remained consistently strong with sales increasing 28% to $8.3 million from $6.5 million in the second quarter of 2006.

We continue to anticipate a healthy second half of 2007. Our flagship Optetrak® knee system is benefiting from the roll-out of the Ligament Balancing System and Low Profile Instrumentation, as well as the expansion of our Rotating Bearing Knee system outside of the U.S. Our Novation hip system has driven the sales increases in our hip business unit, and we anticipate the roll out of our ceramic on ceramic bearing product line extension to continue to fuel hip growth. We are pleased with the rapid surgeon acceptance of our Equinoxe shoulder system.

“Our Biologics division continues to benefit from market penetration of Optecure™ and the introduction of our Accelerate™ platelet concentrating system. The Accelerate system is proving to be popular with a broad group of surgeons,” Petty said.

Chief Financial Officer Jody Phillips said, “Gross margin percentage for the quarter increased slightly to 62.7% compared to 62.5% for the comparable quarter last year as we continued to increase internal manufacturing to leverage our product costs. Total operating expenses in the quarter were $17.3 million, up 38% from $12.6 million in the comparable quarter last year. Operating expenses include the $1.5 million impairment charge announced on July 12. Excluding the impairment charge, operating expenses were $15.8 million, or up 25% from the second quarter last year, which was in line with our expectations for the quarter.”

Looking forward, the company said its target for diluted earnings per share in the third quarter ending September 30, 2007 is in the range of $0.17 to $0.18 based on anticipated revenues of $27 million to $29 million. The company’s target range for 2007 revenue is $115 million to $120 million with diluted EPS of $0.64 to $0.68 including the $0.08 impact of the impairment charge. 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 has scheduled a conference call on Wednesday, August 1 at 9:00 a.m. Eastern Daylight Saving Time. To participate, call (888) 595-4228 any time after 8:50 a.m. Eastern on Aug. 1. International and local callers should dial (480) 293-1744. While in conference, if callers should experience any difficulty or require operator assistance, they can press the (*) followed by the (0) 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=00004220. A podcast will be available approximately 15 minutes after the event ends and can be accessed at http://viavid.net/mp3/00004220.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, and in more than 25 countries in Europe, Asia and Latin America. 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/exacprofile.aspx. Questions should be directed to Frank Hawkins or Julie Marshall of Hawk Associates, Inc. at (305) 451- 1888, e-mail: info@hawkassociates.com.

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.

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