Exactech Inc. (

EXAC

)

Q4 2010 Earnings Call

February 28, 2011 9:00 am ET

Executives

David Petty - President

Bill Petty – Chief Executive Officer

Jody Phillips – Chief Financial Officer

Analysts

Bill Plovanic – Canaccord Genuity

Jeff Johnson – Robert W. Baird

James Sidoti – Sidoti & Company

Robert Gold – Brigantine Advisors

Chris Sassouni – Eagle Asset Management

Presentation

Operator

Compare to:
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» Exactech CEO Discusses Q3 2010 Results - Earnings Call Transcript
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» Exactech Inc.Q1 2010 Earnings Call Transcript

Good morning ladies and gentlemen and thank you for standing by. Welcome to the Exactech Incorporated Fourth Quarter 2010 Earnings conference call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. If you do have a question, please press the star followed by the one on your touchtone phone, and if you need operator assistance at any time, please press the star followed by the zero. For participants using speaker equipment, it will be necessary for you to lift your handset before making your selection. This conference is being recorded today, Monday, February 28, 2011.

I would now like to turn the conference over to our host, Chief Executive Officer, Mr. Bill Petty. Please go ahead, sir.

Bill Petty

Good morning and thank you for joining us. I don’t know about where you are. It’s spring time in Gainesville. All the flowers are blooming and it’s warmed up a lot from the, at least for us, cold weather we had a few weeks ago.

This release contains various forward-looking statements within the meaning of Section 27(a) of the Securities Act of 1933 and Section 21(e) of the Securities Exchange Act of 1934. They represent the Company’s expectations or beliefs concerning future events of the Company’s financial performance. These forward-looking statements are further qualified via 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, market acceptance of the Company’s products, and the effects of government regulation. Results actually achieved may differ materially from the expected results included in these statements.

For 2010, Exactech’s revenue was 190.5 million, which is an increase of 7% compared to 177 million in 2009. Our net income was 10.5 million with earnings per share of $0.80 compared to net income of 8.3 million or $0.65 a year ago. Net income for 2010 and 2009 included pretax legal expenses and compliance cost of 1.3 million and 7 million respectively related to the Department of Justice inquiry and settlement. Excluding the impact of these expenses, the 2010 net income was 11.3 million which represent $0.86 earnings per share compared with 13.2 million or $1.03 for 2009.

For the full year, segment performance in the implant revenue increased 1% to 76.5 million. Hip implant revenue increased 7% to 28.7 million. Biologic and spine revenue increased 2% to 28 million. Extremity implant revenue increased 32% to 30 million, and our other revenues increased 12% to 27 million. Just as a reminder, the other revenues consist almost completely of instrument sales to our out-of-U.S. distributors and our cement product line.

For the fourth quarter, some of the highlights in the segment performance – the total revenue for the quarter was up 7% to 51.8 million compared to 48.3 million in the same quarter last year. The net income for the fourth quarter of 2010 was 2.7 million compared to 0.5 million in 2009, but again, we had the DOJ and compliance cost issue; so without including those, it was $0.21 per share in 2010 and only $0.04 per share in 2009. But if we exclude those costs, earnings per share in 2010 fourth quarter was $0.23 compared to $0.25 in 2009.

Our knee implant revenue decreased 2% to 20.6 million in the fourth quarter. Hip implant revenue, though, was up 21% to 8.2 million. Biologic and spine revenue was up 7% to 7.4 million. Extremity implant revenue was up 32% to 8.6 million, and the other revenues remained flat at 7 million.

The knee business unit, which is our largest operating segment, was up 1% during the year. We believe this is due primarily to marketing transitions in several overseas markets, which we have stated before we are confident these changes are going to provide us with enhanced performance in the future. Specifically for the fourth quarter for the knee unit, it was a challenging comparison in that our fourth quarter business in 2009 for knees was up 24%.

We’re certainly pleased with the growth in our spine business. That’s been enhanced by our acquisition of VertiFlex, which is an important minimally invasive spinal surgery technology which we believe will be very helpful in the future. Despite 7% growth for the year and 21% for the quarter in hips, the extremity unit has now surpassed hips as being Exactech’s second-largest business segment based on 32% growth for the quarter and for the year.

I’m now going to turn it over to Jody Phillips for comments and then David Petty will have some comments, and then we’ll open up for questions. Jody?

Jody Phillips

Good morning everyone and thanks for joining us for the fourth quarter and full year 2010 conference call. Although the fourth quarter sales results were ahead of our expectations, the fourth quarter net income was slightly below our original guidance primarily due to the bad debt expenses of 700,000 associated with our international direct transition. We don’t expect these costs to be as material in future quarters during 2011.

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