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Exactech 2014 Revenue Up 5% to $248.4 Million, Net Income Up 7% to $16.5 Million, EPS $1.18; Q4 Revenue Up 3% to $63.3M, Net Income Up 11% to $5.1M, EPS $0.36

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Exactech, Inc. (Nasdaq: EXAC), a developer and producer of bone and joint restoration products for hip, knee, shoulder and spine, announced today that revenue for 2014 increased 5% to $248.4 million from $237.1 million in 2013. Diluted earnings per share for the year was $1.18 based on net income of $16.5 million, representing a 7% increase compared to net income of $15.4 million or $1.12 diluted earnings per share during 2013.

2014 Full Year Highlights and Segment Performance

o Revenue for the year increased 5% to $248.4 million

o Extremity implant revenue increased 21% to $79.0 million

o Knee implant revenue decreased 2% to $78.7 million

o Hip implant revenue increased 6% to $43.5 million

o Biologic & spine revenues decreased 7% to $23.8 million

o Other revenues decreased 5% to $23.4 million

2014 Fourth Quarter Highlights and Segment Performance

For the fourth quarter of 2014 revenue was $63.3 million, an increase of 3% over $61.6 million for the comparable period last year. Net income for the fourth quarter of 2014 increased 11% to $5.1 million, or $0.36 per diluted share, compared to $4.6 million, or $0.33 per diluted share, for the fourth quarter of 2013. Fourth quarter total and segment revenues were as follows:

o Total revenue for the quarter increased 3% to $63.3 million

o Extremity implant revenue increased 18% to $21.7 million

o Knee implant revenue decreased 7% to $18.9 million

o Hip implant revenue increased 12% to $11.3 million

o Biologic & spine revenues decreased 8% to $6.1 million

o Other revenues decreased 13% to $5.2 million

Management Comment

Exactech CEO and President David Petty said, “Total sales were up 5% to $248.4 million in 2014. Continuing double-digit strength in our shoulder segment resulted in our extremities implant revenue emerging as our largest revenue segment in 2014 with an increase of 21% to $79.0 million.

“The major success of our shoulder business was directly attributable to excellent results that our surgeon customers continue to achieve with our Equinoxe(R) shoulder system. With a strong pipeline of new products and a well-established competency in the segment, we believe this will continue to be a robust business segment in 2015. Our hip business received a strong boost during the year with introduction of the Alteon(R) brand, which features a Tapered Wedge Femoral Stem and Neck Preserving Femoral Stem. These innovations have also produced very positive feedback from surgeons, providing us with excellent momentum going into the new year.

“Currency issues had a particularly specific impact on our knee revenues, which represent the largest volume product that we sell outside of the U.S. Knee unit sales increased on a worldwide basis during the year although revenues slipped, as pricing pressure was a factor. Based upon new product launches, sales force engagement, sales organization development and the product development pipeline, we see a number of positives in our knee business that we expect to be beneficial in the second half of 2015.

“U.S. sales for the year were up 4% to $165.6 million compared with $159.6 million in 2013. International sales increased 7% to $82.8 million. U.S. sales represented 67% of total sales and international sales were 33% of the total. For the fourth quarter of 2014 U.S. sales remained constant at $41.7 million as compared to the fourth quarter of 2013. International sales increased 9% to $21.6 million for the fourth quarter of 2014, which represented 34% of total sales,” Petty said.

Chief Financial Officer Jody Phillips said, “Full year gross margins increased to 70% compared with 69% for 2013 due to manufacturing cost reductions that offset some pricing pressure. Total operating expenses for the year increased 6% to $147.9 million and as a percentage of sales increased to 59.5% from 59.1% resulting in an operating profit increase of 10% to $26.3 million. Currency losses and income taxes significantly impacted our net income in the fourth quarter. The currency loss of $677,000 was partially offset by reinstatement of the Research and Development tax credit during the quarter.”

Looking forward, Exactech released its initial 2015 revenue guidance of $252-$260 million and diluted EPS target of $1.20-$1.28. For the first quarter of 2015, the company anticipates USGAAP revenues of $62-$65 million and diluted EPS of $0.30-$0.32. 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 Wednesday, February 18th at 10:00 a.m. Eastern Time. The call will cover Exactech’s fourth quarter and year end 2014 results. Petty will open the conference call and a question-and-answer session will follow.

To participate in the call, dial 1-888-504-7963 any time after 9:50 a.m. Eastern on February 18th. International and local callers should dial 1-719-457-2627. 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=112991. 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.

EXACTECH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited) (audited)
December 31, December 31,
2014 2013
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10,051 $ 6,011
Accounts receivable, net of allowances of $946 and $993 50,731 59,109
Prepaid expenses and other assets, net 2,436 2,865
Income taxes receivable 1,492 1,331
Inventories – current 72,827 71,590
Deferred tax assets – current 1,620 1,653
Total current assets 139,157 142,559
PROPERTY AND EQUIPMENT:
Land 2,742 2,215
Machinery and equipment 35,434 35,439
Surgical instruments 101,142 95,902
Furniture and fixtures 4,556 4,200
Facilities 19,981 19,187
Projects in process 1,166 852
Total property and equipment 165,021 157,795
Accumulated depreciation (84,915 ) (76,127 )
Net property and equipment 80,106 81,668
OTHER ASSETS:
Deferred financing and deposits, net 676 870
Non-current inventories 17,465 11,100
Product licenses and designs, net 8,641 9,457
Patents and trademarks, net 1,701 2,005
Customer relationships, net 203 669
Goodwill 13,091 13,514
Total other assets 41,777 37,615
TOTAL ASSETS $ 261,040 $ 261,842
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 13,615 $ 16,254
Income taxes payable 146 39
Accrued expenses and other liabilities 9,194 10,974
Other current liabilities 250 250
Current portion of long-term debt 3,000 3,000
Total current liabilities 26,205 30,517
LONG-TERM LIABILITIES:
Deferred tax liabilities 2,794 4,200
Line of credit 10,732
Long-term debt, net of current portion 20,250 23,250
Other long-term liabilities 420 719
Total long-term liabilities 23,464 38,901
Total liabilities 49,669 69,418
SHAREHOLDERS’ EQUITY:
Common stock 139 136
Additional paid-in capital 76,126 69,175
Accumulated other comprehensive loss (8,397 ) (3,902 )
Retained earnings 143,503 127,015
Total shareholders’ equity 211,371 192,424
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 261,040 $ 261,842

EXACTECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(Unaudited)
Three Month Period Twelve Month Periods
Ended December 31, Ended December 31,
2014 2013 2014 2013
NET SALES $ 63,312 $ 61,578 $ 248,373 $ 237,088
COST OF GOODS SOLD 19,116 19,228 74,244 73,019
Gross profit 44,196 42,350 174,129 164,069
OPERATING EXPENSES:
Sales and marketing 21,894 21,718 89,796 84,999
General and administrative 5,860 5,348 22,692 21,149
Research and development 4,856 4,279 18,377 17,802
Depreciation and amortization 4,255 4,198 16,990 16,190
Total operating expenses 36,865 35,543 147,855 140,140
INCOME FROM OPERATIONS 7,331 6,807 26,274 23,929
OTHER INCOME (EXPENSE):
Interest income 3 3 16 8
Other income 25 69 78 138
Interest expense (251 ) (371 ) (1,111 ) (1,223 )
Foreign currency loss (677 ) (132 ) (1,129 ) (444 )
Total other income (expense) (900 ) (431 ) (2,146 ) (1,521 )
INCOME BEFORE INCOME TAXES 6,431 6,376 24,128 22,408
PROVISION FOR INCOME TAXES 1,312 1,781 7,640 7,036
NET INCOME $ 5,119 $ 4,595 $ 16,488 $ 15,372
BASIC EARNINGS PER SHARE $ 0.37 $ 0.34 $ 1.20 $ 1.14
DILUTED EARNINGS PER SHARE $ 0.36 $ 0.33 $ 1.18 $ 1.12
SHARES – BASIC 13,837 13,546 13,732 13,462
SHARES – DILUTED 14,083 13,844 14,016 13,683

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