Exactech Q3 Revenue Up 7% to $59.9 Million. Net Income up 10% to $3.2 Million. Diluted EPS $0.22 vs. $0.20.

GAINESVILLE, Fla.–(BUSINESS WIRE)–Exactech, Inc. (Nasdaq:EXAC), a developer and producer of bone and joint restoration products for hip, knee, extremity, spine and biologic materials, today announced revenue of $59.9 million for the third quarter of 2016, a 7% increase from $56.2 million in the third quarter of 2015. On a constant currency basis, revenue was up 6%. Net income increased 10% to $3.2 million, or $0.22 per diluted share, compared to $2.9 million, or $0.20 per diluted share, in the same quarter a year ago.

Third Quarter Segment Performance

The following are company revenue results, as well as adjusted revenue comparisons on a constant currency basis:

• Extremity implant revenue increased 14% to $22.8 million, a 15% constant currency increase
• Knee implant revenue increased 11% to $17.0 million, a 10% constant currency increase
• Hip implant revenue increased 17% to $11.6 million, a 14% constant currency increase
• Biologic and Spine revenue decreased 23% to $4.4 million, a 22% constant currency decrease
• Other revenue decreased 21% to $4.2 million, a 22% constant currency decrease

Nine Months Highlights and Segment Performance

For the first nine months of 2016, revenue was $191.3 million, an increase of 7% over $179.1 million for the comparable period last year. On a constant currency basis, revenue for the first nine months of 2016 was also up 7%. Net income for the first nine months of 2016 increased 12% to $12.0 million, or $0.84 per diluted share compared to $10.7 million, or $0.75 per diluted share, for the first nine months of 2015. First nine month product revenues were as follows:

• Extremity implant revenue increased 16% to $71.2 million, a 16% constant currency increase
• Knee implant revenue increased 5% to $55.6 million, a 5% constant currency increase
• Hip implant revenue increased 11% to $35.3 million, a 10% constant currency increase
• Biologic and Spine revenue decreased 9% to $15.2 million, a 8% constant currency decrease
• Other revenue decreased 14% to $14.1 million, a 14% constant currency decrease

Management Comment

Exactech CEO and President David Petty said, “We were very pleased with strong double digit growth in our Extremities, Knee and Hip businesses. The momentum in our Extremities segment is based on the continuing successful adoption of the Equinoxe shoulder system and notably with our highly competitive range of glenoid solutions. The Equinoxe Humeral Reconstruction Prosthesis launched earlier in the year also contributed positively to the good quarter. Success in developing our U.S. sales channels was helpful in all three major joint segments. We continued ramping up availability of the Alteon Monoblock Revision Hip stem, which supported 17% hip growth for the quarter. Similarly, our knee revision system contributed positively to 11% knee growth this quarter. In the fourth quarter and the first half of next year, we are moving from the pilot launch phase into a limited launch of the revision knee. This should be increasingly important to growth in coming quarters. We were disappointed with results in our smaller segments, attributable in part to pricing pressures and slower adoption of new products.

“Our new Vantage Total Ankle system achieved an important milestone during the third quarter with successful treatment of the first patient. The pilot launch phase starts in the fourth quarter and continues the first part of next year. During the third quarter we also recorded our first successful surgeries with the new ExactechGPS^® total shoulder application and we expanded our computer-assisted surgery system with a revision total knee application. Adding these two applications to the ExactechGPS platform can facilitate commercial adoption of the system in 2017.

“Worldwide sales increased 7% to $191.3 million for the first nine months of 2016. U.S. sales were up 7% to $131.4 million compared with $123.3 million in the first nine months a year ago. International sales increased 7% to $59.9 million in the first nine months of 2016 and increased 7% on a constant currency basis. U.S. sales for the third quarter of 2016 were up 4% to $42.2 million compared with $40.7 million in the third quarter a year ago. International sales increased 14% to $17.7 million from $15.5 million in the third quarter of 2015 which reflected a 12% constant currency increase. U.S. sales represented 70% of total, sales and international sales represented 30% of total sales during the third quarter.”

Chief Financial Officer Jody Phillips said, “Gross margins decreased to 68.7% from 70.5% for the third quarter a year ago, primarily due to growth in our international distribution business and general pricing pressures. Total operating expenses for the quarter increased 4% to $36.6 million; however, as a percentage of sales, decreased to 61% for the third quarter of 2016. Sales and marketing expenses increased 5% to $21.7 million, due to expanding medical education programs and product launch expenses. General and administrative expenses remained flat at $5.2 million and research and development expenses decreased 3% to $5.1 million during the third quarter though we expect those expenses to increase going forward.”

Looking forward, Exactech updated its 2016 revenue guidance to $256-$258 million and its diluted full year EPS target to $1.15–$1.17. This translates to anticipated revenues of $64.7-$66.7 million and diluted EPS of $0.31-$0.33 for the fourth quarter ending December 31, 2016. 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 Tuesday, November 1st at 9:00 a.m. Eastern Time. The call will cover Exactech’s third quarter 2016 results. Mr. Petty will open the conference call and a question-and-answer session will follow.

To participate in the call, dial 1-877-440-5803 any time after 8:50 a.m. Eastern on November 1st. International and local callers should dial 1-719-325-4765. A live webcast of the call will be available at http://www.hawkassociates.com/profile/exac.cfm or http://public.viavid.com/index.php?id=121574. 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.

Non-GAAP financial measures – 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.