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Exactech Inc. Reports Operating Results (10-Q)

November 05, 2012 | About:
10qk

10qk

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Exactech Inc. (EXAC) filed Quarterly Report for the period ended 2012-09-30.

Exactech, Inc. has a market cap of $213.9 million; its shares were traded at around $15.98 with a P/E ratio of 19.9 and P/S ratio of 1. Exactech, Inc. had an annual average earning growth of 8.2% over the past 10 years. GuruFocus rated Exactech, Inc. the business predictability rank of 4-star.

Highlight of Business Operations:

During the nine months ended September 30, 2012, sales increased 8% to $165.1 million from $152.3 million in the comparable nine months ended September 30, 2011, as we continued to gain global market share. Gross margins increased to 69% from 68% as a result of our growth in our international direct distribution subsidiaries as well as growth in domestic sales. Operating expenses increased 6% from the nine months ended September 30, 2011, and, as a percentage of sales, operating expenses decreased to 60% during the first nine months of 2012 as compared to 62% for the same period in 2011. The reduction, as a percentage of sales, was primarily due to a decrease in compliance and legal costs associated with the DPA to $1.4 million in the first nine months of 2012 from $3.7 million in the first nine months of 2011. Net income for the nine months ended September 30, 2012 increased 27% to $8.9 million, and diluted earnings per share were $0.67 as compared to $0.53 last year.

For the quarter ended September 30, 2012, sales increased 8% to $51.3 million from $47.3 million in the quarter ended September 30, 2011, as a result of market share gains and partially offset by general pricing pressures. Sales of knee implant products increased 2% to $18.2 million for the quarter ended September 30, 2012 compared to $17.9 million for the quarter ended September 30, 2011, as sales of our Logic knee systems continued to grow. The sales return from our former independent distributor in Spain, as well as currency fluctuations partially offset the market growth, as the knee product growth, excluding the impact of those two offsetting items, reflected a 6% growth. Sales of our extremity products were up 25% to $12.2 million as compared to $9.8 million for the same period in 2011, as we continued to see increasing market acceptance of our Equinoxe® reverse shoulder system. Hip implant sales of $9.2 million during the quarter ended September 30, 2012 increased 16% over the $8.0 million in sales during the quarter ended September 30, 2011, as we continued growth in our Novation Element™ hip system. Sales from biologics and spine increased 10% during the quarter ended September 30, 2012 to $5.9 million, from $5.4 million in the comparable quarter in 2011. Sales of all other products decreased to $5.6 million as compared to $6.2 million in the same quarter last year. Domestically, sales increased 12% to $35.3 million, or 69% of total sales, during the quarter ended September 30, 2012, up from $31.5 million, which represented 67% of total sales, in the comparable quarter last year. Internationally, sales increased 1% to $16.0 million, representing 31% of total sales, for the quarter ended September 30, 2012, as compared to $15.8 million, which was 33% of total sales, for the same quarter in 2011. On a constant currency basis international sales grew approximately 7% during the quarter ended September 30, 2012, compared to the same quarter in 2011.

For the nine months ended September 30, 2012, sales increased 8% to $165.1 million from $152.3 million in the comparable nine months ended September 30, 2011. Sales of knee implant products increased 1% to $60.7 million for the nine months ended September 30, 2012 compared to $59.9 million for the same nine month period in 2011. Sales of our extremity products were up 29% to $37.2 million as compared to $28.9 million for the same period in 2011, as the acceptance of our Equinoxe reverse shoulder system continued. Hip implant sales of $30.5 million during the nine months ended September 30, 2012 increased 25% over the $24.4 million in sales during the nine months ended September 30, 2011, as we continued to experience market penetration with our Novation Element hip system. Sales from biologics and spine decreased 2% during the nine months ended September 30, 2012 to $18.0 million, from $18.4 million in the comparable nine months in 2011. Sales of all other products decreased to $18.7 million as compared to $20.7 million in the same nine months in 2011. Domestically, sales increased 8% to $107.3 million, or 65% of total sales, during the nine months ended September 30, 2012, up from $99.0 million, which also represented 65% of total sales, in the comparable period in 2011. Internationally, sales increased 8% to $57.8 million, representing 35% of total sales, for the nine months ended September 30, 2012, as compared to $53.3 million, which was also 35%

Total operating expenses increased 4% to $31.4 million in the quarter ended September 30, 2012 from $30.3 million in the quarter ended September 30, 2011, primarily due to increases in research and development and sales and marketing expenses, offset partially by a reduction in general and administrative expenses. As a percentage of sales, total operating expenses decreased to 61% for the quarter ended September 30, 2012, as compared to 64% for the quarter ended September 30, 2011. The decrease in operating expenses, as a percentage of sales, is primarily due to the decrease in compliance expenses related to the expiration of the DPA from $1.0 million in the third quarter of 2011 to $0.3 million in the third quarter of 2012. Total operating expenses increased 6% to $99.4 million in the nine months ended September 30, 2012 from $94.2 million in the nine months ended September 30, 2011. As a percentage of sales, total operating expenses decreased to 60% for the nine months ended September 30, 2012, as compared to 62% for the same period in 2011. Included in operating expenses for the first nine months in 2012 is $1.4 million in compliance costs, compared to $3.7 million in the first nine months in 2011.

Income before provision for income taxes increased 137% to $4.3 million in the quarter ended September 30, 2012 from $1.8 million in the quarter ended September 30, 2011. The effective tax rate, as a percentage of income before taxes, was 40% for the quarter ended September 30, 2012 as compared to 27% for the quarter ended September 30, 2011. The increase in the effective tax rate for the third quarter of 2012 was primarily due to to non-deductible losses in certain European operations and a higher percentage of our income from operations from the U.S. which incurs a higher effective tax rate. As a result of the foregoing, we realized net income of $2.6 million in the quarter ended September 30, 2012, an increase of 95% from $1.3 million in the quarter ended September 30, 2011. As a percentage of sales, net income increased to 5% for the quarter ended September 30, 2012 from 3% for the quarter ended September 30, 2011. Earnings per share, on a diluted basis, increased to $0.19 for quarter ended September 30, 2012, from $0.10 for the quarter ended September 30, 2011. Income before provision for income taxes increased 40% to $14.1 million in the nine months ended September 30, 2012 from $10.1 million in the same period in 2011. The effective tax rate, as a percentage of income before taxes, was 37% for the nine months ended September 30, 2012 and 30% for the same nine month periods in 2011. The increase in the effective tax rate for the first nine months was primarily due to the tax impact of the research and development tax credit that was effective in the first nine months of 2011 as opposed to having expired during the first nine months of 2012, and the change in estimate of the non-deductible portion of the 2010 DOJ settlement. Formerly, we anticipated that $0.6 million of this settlement was non-deductible and, as a result of IRS discussions with the DOJ in the third quarter of 2012, it was clarified that $1.3 million of this settlement was non-deductible resulting in $0.3 million of additional tax liability. We expect our effective tax rates to range from 35% to 37% for the fourth quarter of 2012, assuming non-renewal of the research and development tax

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