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Exactech (EXAC) Q4 Earnings Top, Revenues Miss Estimates - Analyst Blog

Producer of bone and joint restoration products, Exactech Inc. ( EXAC ), announced adjusted earnings per share (EPS) of 36 cents in the fourth quarter of 2014, which beat the Zacks Consensus Estimate by a couple of cents. Adjusted EPS was also higher than the year-ago figure of 33 cents.

However, unfavorable currency fluctuations continue to trouble the company. The deterioration of the euro and the Japanese yen adversely impacted Exactech's adjusted EPS by 3 cents in the fourth quarter of 2014.

Exactech Inc. - Earnings Surprise | FindTheBest

Quarter Details

Net sales increased 2.8% year over year to $63.3 million. However, the number was marginally short of the Zacks Consensus Estimate of $64 million.

Extremity implant revenues rose 18% to $21.7 million, on the back of strong growth in the company's shoulder segment. The growth in the shoulder business was primarily owing to the success of Exactech's Equinoxe shoulder system.

Knee implant revenues, on the other hand, declined 7% to $18.9 million, mainly due to unfavorable foreign exchange rates. Notably, this segment represents the largest volume of products that Exactech sells outside the U.S.

Hip implant revenues were up 12% year over year to $11.3 million. The hip business received significant market traction through 2014 due to the launch of the Alteon brand, which features a Tapered Wedge Femoral Stem and Neck Preserving Femoral Stem.

Biologic and spine revenues were down 8% year over year at $6.1 million. Other revenues declined 13% to $5.2 million.

U.S. sales (66% of total sales) remained constant on a year-over-year basis at $41.7 million. International sales (34%), however, increased 9% to $21.6 million.

Gross margin expanded 100 basis points (bps) on a year-over-year basis to 69.8%. The upside may be primarily attributed to the higher mix of extremity's business and the reduction in manufacturing costs. The positives managed to offset the pricing pressure.

Research and development (R&D) expenses, as a percentage of net sales, expanded 70 bps from the year-ago quarter to 7.7%. General and administrative (G&A) expenses expanded 60 bps on a year-over-year basis. However, sales and marketing expenses, as a percentage of net sales, contracted 70 bps.

Total operating expenses, as a percentage of net sales, rose 50 bps to 58.2% due to increases in Exactech's worldwide compliance infrastructure and investments. The rise in expenses may also be attributed to the expansion of the company's sales organization as well as the cost associated with new product rollouts.

Operating margin expanded 50 bps year over year to 11.6%.

Financial Position

Cash and cash equivalent, as of Dec 31, 2014, stood at $10.1 million compared to $9.1 million at the end of the previous quarter.

Guidance

Exactech expects 2015 revenues to lie in the range of $252-$260 million. Adjusted EPS is anticipated at $1.20-$1.28.

For the first quarter of 2015, management anticipates domestic revenues to lie in the band of $62-$65 million, representing constant currency (cc) revenue increase of 1-6%. Adjusted EPS is expected to range between 30 cents and 32 cents.

Management expects gross margin to decline in the range of 20-50 bps, assuming that lesser manufacturing costs will continue to offset modest average selling price (ASP) decreases.

During 2015, management expects operating expenses, as a percentage of sales, to decline 50 bps, on the back of sales and marketing and G&A cost reductions.

Sales and marketing expenses, as a percentage of sales, is projected in the range of 35-36%, representing an increase of 2-4%. G&A expenses are expected in the band of 8.5-9.5%, exhibiting an increase of 1-3%. R&D expenses are anticipated to increase 6-8% to figure in the range of 7-8% of sales.

Notably, the expense growth estimates include the impact of unfavorable foreign exchange rates, which are projected to have a 1.5% reduction on the growth rate of operational expenses.

Our Take

Exactech reported mixed fourth quarter 2014 results, with earnings outshining the Zacks Consensus Estimate while the top line fell short of the same.

We are impressed with the shoulder segment at Exactech, which is now the company's largest revenue segment. Riding on the back of vital product launches and a well-established proficiency in this particular segment, we feel Exactech is poised to benefit strongly from this business in 2015.

Exactech recently acquired its surgical technology partner - BlueOrtho SAS. Going ahead, the company has plans in store to introduce the ExactechGPS system, particularly designed for the shoulder. We feel this is going to further drive top-line growth.

Going forward, management expects the currency fluctuations to continue affecting the company's results. Moreover, pricing pressure remains a serious concern in the near term.

Zacks Rank

Currently, Exactech has a Zacks Rank #3 (Hold). Better-ranked stocks in the broader medical sector include ABIOMED ( ABMD ), Luminex ( LMNX ) and Inogen ( INGN ). While ABIOMED and Luminex sport a Zacks Rank #1 (Strong Buy), Inogen carries a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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