Exactech Reports Second-Quarter Gains

Gainesville, Fla.-based Exactech Inc., a developer of bone and joint restoration products for hip, knee, shoulder and spine, reported $63.9 million in sales for the second quarter of 2014 (ended June 30), a 6 percent increase compared to $60.6 million in the second quarter of 2013. Net income was $4.2 million, or 30 cents per diluted share, compared to $3.7 million, or 27 cents per diluted share, in the same quarter a year ago.

Knee implant revenue was constant at $21 million. Extremity implant revenue increased 17 percent to $19 million. Hip implant revenue increased 6 percent to $11.2 million. Biologic and Spine revenue decreased 5 percent to $6.5 million.

For the first six months of 2014, revenue was $127.2 million, an increase of 6 percent compared to $119.9 million for 2012. Net income for the first six months of 2014 increased 10 percent to $8.4 million, or 60 cents per diluted share compared to $7.6 million, or 56 cents per diluted share for the first six months of 2013. First six month product revenues were as follows:

Knee implant revenue was constant at $41.6 million. Extremity implant revenue increased 21 percent to $38.7 million. Hip implant revenue increased 5 percent to $22 million. Biologic and spine revenue decreased 4 percent to $12.3 million.

“Our first half results were generally strong. Exactech overall is growing well with net income up 12 percent in the quarter and 10 percent in the first half,” said Exactech CEO and President David Petty. “System-wide revenue is up 6 percent. This reflects our ability to differentiate ourselves and to compete effectively in a turbulent environment. This also underscores our ongoing success in providing a positive experience for our surgeon customers and hospitals.”

U.S. knee sales growth was offset by price reductions in the quarter that kept revenue flat, Petty said. Shoulder sales continued to be a “major driver,” he added.

“We were pleased with hip sales that were up 6 percent for the quarter and as a result we feel extremely good about the second half of 2014 for our hip business with the second half launch of the Alteon Tapered Wedge stem system,” Petty said. “Growth in our spine business continues to be offset by lower biologic revenues resulting in a 5 percent decrease in revenue in that segment.”

Overall, U.S. sales were up 6 percent to $42.2 million compared to $39.9 million in the second quarter a year ago. International sales increased 5 percent to $21.7 million. U.S. sales represented 66 percent of total sales and international sales were 34 percent of the company’s total. For the first six months of 2014, U.S. sales increased 6 percent to $83.8 million compared with $78.8 million in 2013, once again accounting for 66 percent of total sales, and international sales increased 6 percent to $43.4 million and remained at 34 percent of total sales, according to Petty.

“Gross margins increased to 69.4 percent from 68.5 percent for the second quarter a year ago. Total operating expenses for the second quarter increased 6 percent to $37.5 million and as a percentage of sales increased to 59 percent from 58 percent,” said Chief Financial Officer Jody Phillips. “With an operating profit increase of 10 percent to $6.8 million we are delivering the operating margin leverage that we have been targeting. Our balance sheet reflected the strong progress we are making in creating positive cash flow, which has enabled us to reduce debt down to very manageable levels and provides us with additional strength going forward.”

Looking forward, Exactech updated its 2014 revenue guidance of $249 million to $253 million. For the third quarter ending Sept. 30, the company said it anticipates revenues of $57.5 million to $59.5 million.