Exactech Inc. (EXAC, Financial) filed Quarterly Report for the period ended 2009-03-31.
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 Inc. has a market cap of $171.9 million; its shares were traded at around $13.52 with a P/E ratio of 14.8 and P/S ratio of 1.1. Exactech Inc. had an annual average earning growth of 12.2% over the past 5 years.
Accelerate platelet concentrating system. Sales of our extremity products were up 57% to $5.8 million as compared to $3.7 million for the same period in 2008, as we continue to see increasing market acceptance of our Equinoxe® shoulder system. Sales of all other products increased to $5.4 million as compared to $4.6 million in the same quarter last year, which includes $2.3 million in sales of other products from our acquired distributor in France. Domestically, total sales increased 9% to $30.8 million, or 71% of total sales, during the quarter ended March 31, 2009, up from $28.3 million, which also represented 71% of total sales, in the comparable quarter last year. Internationally, total sales increased 9% to $12.5 million, representing 29% of total sales, for the quarter ended March 31, 2009, as compared to $11.5 million, which was also 29% of total sales, for the same quarter in 2008.
Excluding the impact of the pre-tax expenses of $1.4 million for the DOJ inquiry recognized during the first quarter of 2009, income from operations for the quarter ended March 31, 2009, increased 15% to $5.5 million from $4.8 million adjusted income from operations during the first quarter of 2008. Adjusted net income for the quarter ended March 31, 2009, increased 12% to $3.3 million, as compared to an adjusted 2008 net income of $3.0 million, adjusted also for DOJ inquiry expenses incurred during the same quarter of 2008. Adjusted diluted earnings per share for 2009 increased to $0.26 as compared to adjusted diluted earnings per share of $0.25 for 2008.
Operating ActivitiesOperating activities provided net cash of $4.4 million in the three months ended March 31, 2009, as compared to net cash from operations of $2.5 million during the three months ended March 31, 2008. A primary contributor to this change related to a decelerating increase of accounts receivable during the first quarter of 2009 as compared to the first quarter of 2008 as a result of our increased collection efforts. Our allowance for doubtful accounts and sales returns increased to $1.3 million at March 31, 2009 from $1.0 million at December 31, 2008. The total days sales outstanding (DSO) ratio, based on average accounts receivable balances, was 68 for the three months ended March 31, 2009 from a ratio of 59 for the three months ended March 31, 2008, as a result of our customers stretching their payment terms during this economic downturn. There have not been any significant changes in our credit terms and policies and we anticipate accounts receivable to continue to increase based on sales growth and current economic conditions. Inventory used cash of $1.9 million during the first three months ended March 31, 2009, compared to net cash used of $1.4 million during the same period ended March 31, 2008. The increase in accounts payable and income tax payable for the three months ended March 31, 2009 provided aggregate net cash of $1.8 million, in contrast to net cash provided of $4.5 million for the three months ended March 31, 2008.
Investing ActivitiesInvesting activities used net cash of $4.7 million in the three months ended March 31, 2009, as compared to $8.4 million in the three months ended March 31, 2008. The decrease was due to our net cash outlay of $4.3 million for purchases of surgical instrumentation and manufacturing equipment, and $406,000 for purchases of product licenses during the period ended March 31, 2009 as opposed to activity during the same period of 2008 resulting in cash outlay of $4.3 million for the acquisition of Altiva, $1.1 million investment in a license technology, and $3.6 million in purchases of surgical instrumentation and manufacturing equipment.
Effective April 1, 2008, we completed the acquisition of our French distributor, France Medica, for the purchase of 100% of the shares of France Medica. France Medica has worked with us as a distributor of Exactech products in France for a number of years. The initial fixed purchase price of 5.2 million EUR, or $8.2 million based on an exchange rate of $1.56 per 1.00 EUR on March 31, 2008, consisted of $6.3 million in cash paid to shareholders, 37,922 shares of Exactech common stock, par value $0.01 per share worth $955,000, and $936,000 in costs incurred for the acquisition. The Common Stock issued as partial proceeds for the acquisition will not be registered under the Securities Act of 1933, as amended (the Securities Act) or any state securities laws and will not be able to be sold except in a transaction registered under, or exempt from, the registration provisions of the Securities Act and applicable state securities laws. We acquired cash of $1.2 million.
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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 Inc. has a market cap of $171.9 million; its shares were traded at around $13.52 with a P/E ratio of 14.8 and P/S ratio of 1.1. Exactech Inc. had an annual average earning growth of 12.2% over the past 5 years.
Highlight of Business Operations:
During the quarter ended March 31, 2009, sales increased 9% to $43.3 million from $39.8 million in the comparable quarter ended March 31, 2008, as we continue to expand in the market despite the current economic downturn. Gross margins increased to 66.5% from 62.9% as a result of growth in our domestic market, and international sales with a more stable margin, as opposed to the prior year where we experienced low margin international sales as a result of stocking product at several new distributors. Operating expenses increased 20% from the quarter ended March 31, 2008, and as a percentage of sales, operating expenses increased to 57% during the first quarter of 2009 as compared to 52% for the same quarter in 2008. This increase was partially due to $1.4 million in legal and other charges related to a Department of Justice, or DOJ, inquiry. We also incurred additional sales and marketing expenses and depreciation and amortization expenses as a result of our acquisitions during 2008. Net income for the quarter ended March 31, 2009 decreased 12% and diluted earnings per share were $0.19 as compared to $0.23 last year. Net income was also affected by the DOJ inquiry, which had a net of tax impact of $874,000 on net income and $0.07 effect on earnings per share. Excluding the impact of the DOJ inquiry costs, net income increased 12% to $3.3 million.Accelerate platelet concentrating system. Sales of our extremity products were up 57% to $5.8 million as compared to $3.7 million for the same period in 2008, as we continue to see increasing market acceptance of our Equinoxe® shoulder system. Sales of all other products increased to $5.4 million as compared to $4.6 million in the same quarter last year, which includes $2.3 million in sales of other products from our acquired distributor in France. Domestically, total sales increased 9% to $30.8 million, or 71% of total sales, during the quarter ended March 31, 2009, up from $28.3 million, which also represented 71% of total sales, in the comparable quarter last year. Internationally, total sales increased 9% to $12.5 million, representing 29% of total sales, for the quarter ended March 31, 2009, as compared to $11.5 million, which was also 29% of total sales, for the same quarter in 2008.
Excluding the impact of the pre-tax expenses of $1.4 million for the DOJ inquiry recognized during the first quarter of 2009, income from operations for the quarter ended March 31, 2009, increased 15% to $5.5 million from $4.8 million adjusted income from operations during the first quarter of 2008. Adjusted net income for the quarter ended March 31, 2009, increased 12% to $3.3 million, as compared to an adjusted 2008 net income of $3.0 million, adjusted also for DOJ inquiry expenses incurred during the same quarter of 2008. Adjusted diluted earnings per share for 2009 increased to $0.26 as compared to adjusted diluted earnings per share of $0.25 for 2008.
Operating ActivitiesOperating activities provided net cash of $4.4 million in the three months ended March 31, 2009, as compared to net cash from operations of $2.5 million during the three months ended March 31, 2008. A primary contributor to this change related to a decelerating increase of accounts receivable during the first quarter of 2009 as compared to the first quarter of 2008 as a result of our increased collection efforts. Our allowance for doubtful accounts and sales returns increased to $1.3 million at March 31, 2009 from $1.0 million at December 31, 2008. The total days sales outstanding (DSO) ratio, based on average accounts receivable balances, was 68 for the three months ended March 31, 2009 from a ratio of 59 for the three months ended March 31, 2008, as a result of our customers stretching their payment terms during this economic downturn. There have not been any significant changes in our credit terms and policies and we anticipate accounts receivable to continue to increase based on sales growth and current economic conditions. Inventory used cash of $1.9 million during the first three months ended March 31, 2009, compared to net cash used of $1.4 million during the same period ended March 31, 2008. The increase in accounts payable and income tax payable for the three months ended March 31, 2009 provided aggregate net cash of $1.8 million, in contrast to net cash provided of $4.5 million for the three months ended March 31, 2008.
Investing ActivitiesInvesting activities used net cash of $4.7 million in the three months ended March 31, 2009, as compared to $8.4 million in the three months ended March 31, 2008. The decrease was due to our net cash outlay of $4.3 million for purchases of surgical instrumentation and manufacturing equipment, and $406,000 for purchases of product licenses during the period ended March 31, 2009 as opposed to activity during the same period of 2008 resulting in cash outlay of $4.3 million for the acquisition of Altiva, $1.1 million investment in a license technology, and $3.6 million in purchases of surgical instrumentation and manufacturing equipment.
Effective April 1, 2008, we completed the acquisition of our French distributor, France Medica, for the purchase of 100% of the shares of France Medica. France Medica has worked with us as a distributor of Exactech products in France for a number of years. The initial fixed purchase price of 5.2 million EUR, or $8.2 million based on an exchange rate of $1.56 per 1.00 EUR on March 31, 2008, consisted of $6.3 million in cash paid to shareholders, 37,922 shares of Exactech common stock, par value $0.01 per share worth $955,000, and $936,000 in costs incurred for the acquisition. The Common Stock issued as partial proceeds for the acquisition will not be registered under the Securities Act of 1933, as amended (the Securities Act) or any state securities laws and will not be able to be sold except in a transaction registered under, or exempt from, the registration provisions of the Securities Act and applicable state securities laws. We acquired cash of $1.2 million.
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