YTD Revenue Up 12%, EPS $0.48

GAINESVILLE, Fla. – August 3, 2010 -- Exactech, Inc. (Nasdaq: EXAC), a developer and producer of bone and joint restoration products for hip, knee, shoulder, spine and biologic materials, announced today revenue of $47.6 million for the second quarter of 2010, a 10% increase over $43.3 million in the second quarter of 2009. Net income increased 14% to $3.0 million, or $0.23 per diluted share, compared to $2.6 million, or $0.20 per diluted share, in the same quarter a year ago. Net income for the quarter, excluding pre-tax legal expenses and costs of $0.4 million related to the ongoing Department of Justice (DOJ) inquiry, was $3.2 million or $0.25 EPS.

Second Quarter Highlights and Segment Performance

Second quarter revenue increased 10% to $47.6 million

US GAAP net income increased 14% to $3.0 million or $0.23 EPS

Knee implant revenue increased 2% to $19.4 million

Hip implant revenue increased 9% to $7.3 million

Biologic and Spine revenue decreased 1% to $6.8 million

Extremity implant revenue increased 40% to $7.1 million

Other products revenue increased 22% to $7.0 million

Six Months Highlights and Segment Performance
For the first six months of 2010 revenue was $96.7 million, an increase of 12% over $86.6 million for the comparable period last year. Net income for the first six months of 2010 increased 23% to $6.3 million, or $0.48 per diluted share compared to $5.1 million, or $0.40 per diluted share for the first six months of 2009. Net income for the six months, excluding pre-tax legal expenses and costs of $0.6 million related to the ongoing Department of Justice (DOJ) inquiry, was $6.6 million or $0.51 EPS. First six month product revenues were as follows:

Knee implant revenue increased 8% to $40.3 million from $37.4 million

Hip implant revenue increased 5% to $13.9 million from $13.2 million

Biologic and spine revenue increased 2% to $14.2 million from $13.9 million

Extremity implant revenue increased 30% to $14.2 million from $10.9 million

Other products revenue increased 27% to $14.1 million from $11.1 million

Management Comment
Exactech Chairman and CEO Bill Petty said, “We had excellent second quarter performance in several of our market segments as our growth rate was again above that of the industry. Sales and marketing transitions underway in some of our overseas markets slowed our growth in knee sales. But despite some near term dislocation, we believe these changes are strengthening our ability to grow our overseas business and that future results will reflect that. We were pleased with the rebound in our hip sales stimulated by the growing acceptance of our Novation Hip System. Sales of our extremities products led by our Equinoxe® shoulder continued to be very strong.

“During the quarter, the acquisition of Brighton Partners was an important event that enables us now to directly control a key element of our business. Brighton is the sole source supplier of the proprietary direct compression molded polyethylene bearings used exclusively in our Optetrak® knee replacement system, our largest product.

Exactech President David Petty said, “For the quarter, U.S. sales rose 12% to $32.8 million compared with $29.2 million. International sales grew 5% to $14.8 million but decreased to 31% of total sales from 33% of total sales for the second quarter of 2009. For the first six months of 2010, U.S. sales rose 9% to $65.6 million compared with $60.0 million in 2009. International sales increased 17% to $31.1 million from $26.6 million for the same period of 2009. As a percentage of sales, international sales in the first six months of 2010 increased to 32% from 31% in the first six months of the prior year.

“Our pipeline of new products continues to be very robust. We have six new products set for launch by the end of this year and another 14 in the pipeline for 2011. This underscores our ongoing commitment to be a world leader in joint restoration in terms of product quality, service and market share.”

Chief Financial Officer Jody Phillips said, “Net income for the quarter was up 14% to $3.0 million from $2.6 million in the same quarter last year primarily due to our sales growth and lower legal costs. Gross margins increased to 65.5% for the second quarter of 2010 from 62.3% for the second quarter of 2009, primarily due to the stable growth in the domestic market and continuing cost reduction efforts.

“Total operating expenses for the quarter were $26.0 million, an increase of 15% from $22.6 million in the comparable quarter. As a percentage of sales, second quarter operating expenses increased to 55% from 52% for the second quarter of 2009. Total sales and marketing expenses were up 21%, and increased to 33% as a percentage of sales from 30% during 2009, as we integrate expenses from our new subsidiaries in Germany and Spain. General and administrative expenses decreased 7% in the second quarter to $4.2 million from $4.5 million. Research and development expenses rose 27% to $3.4 million from $2.7 million in the second quarter of 2009, reflecting our continuing emphasis on new product development and our strong new product pipeline.”

Looking forward, Exactech updated its revenue targets for 2010 to the range of $191 million to $197 million and reaffirmed its target for diluted earnings per share for the year 2010 in the range of $0.92 to $0.98. For the third quarter ending September 30, 2010, the company targets revenue in the range of $43 million to $46 million and diluted earnings per share in the range of $0.20 to $0.22. These are U.S. GAAP EPS target ranges that include the impact of DOJ inquiry and compliance 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 financial statements are below.

Conference Call
The company has scheduled a conference call on Wednesday, August 4, 2010 at 10:00 a.m. Eastern Time. The call will cover the company’s second quarter 2010 results. Dr. Petty will open the conference call and a question-and-answer session will follow.

To participate in the call, dial 1-877-941-4778 any time after 9:50 a.m. EDT on August 4. International and local callers should dial 1-480-629-9763. 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=00007812. A podcast will be available approximately one hour after the event ends and can be accessed at http://viavid.net/mp3/00007812.mp3. Both will be archived for approximately 90 days.

About Exactech
Based in Gainesville, Fla., Exactech is celebrating its 25th anniversary developing and marketing 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.

Investor contact
Jody Phillips
Chief Financial Officer
352-377-1140


Hawk Associates
305-451-1888
Julie Marshall or Frank Hawkins
E-mail: exactech@hawkassociates.com

EXACTECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
	(unaudited)							(audited)
		June 30,							December 31,
		2010							2009
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	2,489						$	2,889
Accounts receivable, net of allowances of $1,584 and $835		38,025							33,753
Prepaid expenses and other assets, net		3,988							2,317
Income taxes receivable		84							389
Inventories		63,281							56,417
Deferred tax assets – current		1,311							1,703
Total current assets		109,178							97,468
PROPERTY AND EQUIPMENT:
Land		2,050							1,895
Machinery and equipment		25,840							24,322
Surgical instruments		49,122							43,713
Furniture and fixtures		3,198							3,051
Facilities		15,899							15,517
Projects in process		2,026							1,024
Total property and equipment		98,135							89,522
Accumulated depreciation		(40,322					)		(37,150	)
Net property and equipment		57,813							52,372
OTHER ASSETS:
Deferred financing and deposits, net		764							1,159
Non-current inventory		1,211							—
Product licenses and technology, net		11,362							6,225
Patents and trademarks, net		2,080							2,057
Customer relationships, net		1,806							1,928
Goodwill		12,735							9,811
Total other assets		29,958							21,180
TOTAL ASSETS	$	196,949						$	171,020
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	15,086						$	9,306
Income taxes payable		1,247							525
Accrued expenses and other liabilities		12,262							11,370
Other current liabilities		1,271							1,354
Current portion of long-term debt		1,204							1,190
Total current liabilities		31,070							23,745
LONG-TERM LIABILITIES:
Deferred tax liabilities		2,680							1,989
Line of credit		20,139							7,794
Long-term debt, net of current portion		4,613							5,221
Other long-term liabilities		477							518
Total long-term liabilities		27,909							15,522
Total liabilities		58,979							39,267
SHAREHOLDERS’ EQUITY:
Common stock		129							128
Additional paid-in capital		55,361							53,475
Accumulated other comprehensive loss		(3,404					)		(1,461	)
Retained earnings		85,884							79,611
Total shareholders’ equity		137,970							131,753
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	196,949						$	171,020

 

EXACTECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(Unaudited)
	Three Month Periods										Six Month Periods
	Ended June 30,										Ended June 30,
	2010				2009						2010				2009
NET SALES	$	47,570			$	43,302					$	96,670			$	86,606
COST OF GOODS SOLD		16,434				16,335						34,106				30,842
Gross profit		31,136				26,967						62,564				55,764
OPERATING EXPENSES:
Sales and marketing		15,855				13,079						31,203				27,675
General and administrative		4,159				4,462						8,577				9,546
Research and development		3,441				2,707						7,083				5,560
Depreciation and amortization		2,536				2,333						4,937				4,512
Total operating expenses		25,991				22,581						51,800				47,293
INCOME FROM OPERATIONS		5,145				4,386						10,764				8,471
OTHER INCOME (EXPENSE):
Interest income		36				4						37				10
Other income (loss)		(15		)		14						2				14
Interest expense		(144		)		(237				)		(260		)		(387			)
Foreign currency exchange gain (loss)		48				41						(183		)		8
Total other expenses		(75		)		(178				)		(404		)		(355			)
INCOME BEFORE INCOME TAXES		5,070				4,208						10,360				8,116
PROVISION FOR INCOME TAXES		2,078				1,580						4,087				3,023
NET INCOME	$	2,992			$	2,628					$	6,273			$	5,093
BASIC EARNINGS PER SHARE	$	0.23			$	0.21					$	0.49			$	0.40
DILUTED EARNINGS PER SHARE	$	0.23			$	0.20					$	0.48			$	0.40
SHARES - BASIC		12,881				12,768						12,864				12,742
SHARES - DILUTED		13,123				12,895						13,098				12,878
Adjusted net income to exclude the effect of DOJ related expenses:
Net Income	$	2,992			$	2,628					$	6,273			$	5,093
Adjustments for DOJ related expenses:
DOJ related expenses, pre-tax		379				1,209						579				2,600
Income tax benefit		140				459						214				988
		239				750						365				1,612
Adjusted net income - excluding DOJ related expense	$	3,231			$	3,378					$	6,638			$	6,705
Diluted earnings per share	$	0.23			$	0.20					$	0.48			$	0.40
Adjustment of DOJ related expenses, net		0.02				0.06						0.03				0.12
Adjusted diluted earnings per share	$	0.25			$	0.26					$	0.51			$	0.52