Exactech (EXAC) Beats Earnings On Higher Revenues In Q2

Exactech Inc. (NASDAQ:EXAC) announced adjusted earnings of 31 cents per share in the second quarter of 2016, which beat the Zacks Consensus Estimate by a penny. Adjusted earnings per share (EPS) also grew 18.7% on a year-over-year basis.

The upside was primarily driven by a 7.5% year-over-year increase in revenues to $66.1 million. The top line also beat the Zacks Consensus Estimate of $64 million. On a constant currency (cc) basis, revenues increased 7%.

U.S. sales rose 8% on a year-over-year basis to $44.6 million, while international sales increased 7% to $21.5 million. The U.S. and international sales represented 67% and 33% of total sales, respectively.

Revenue growth was driven by new product launches for the revision hip, knee and shoulder systems. Additionally, the company’s Equinoxe shoulder product line has contributed towards the top line growth.

Segment Details

Extremity implant revenues increased 18% on a year-over-year basis at cc to $24.2 million.

However, Hip implant segment witnessed growth of 13% to $12.4 million (12% at cc), primarily driven by adoption of its popular Alteon tapered wedge hip stem and Integrip porous metal accelerator component products.

Meanwhile, revenues climbed 1% to $19.2 million at the Knee implant segment (flat at cc).

Biologic & spine revenues declined 7% to $5.4 million (8% at cc). Other revenues also fell 6% to $4.9 million.

Margins

Gross margin expanded 80 basis points (bps) on a year-over-year basis to 69.3%. The upside may be attributed to the strength in U.S. operations and higher overall revenues.

EXACTECH INC Price, Consensus and EPS Surprise

EXACTECH INC Price, Consensus and EPS Surprise | EXACTECH INC Quote

Total operating expenses expanded 70 bps $39.2 million in the quarter, however, the percentage of sales remained flat at 59%.

The rise in costs was primarily a result of higher sales and marketing (S&M) expenses, which increased 110 bps to 36%, owing to the ongoing investments in the development of the U.S. sales organization.

Research and Development (R&D) expenses increased 60 bps to 8.1%, driven by higher product development costs to support innovative product launches. However, general and administrative (G&A) expenses contracted 90 bps to 8.5%.

Operating margin expanded 10 bps on a year-over-year basis to 10%.

Guidance

Exactech expects full-year 2016 revenues in the range of $253–$258 million. We believe a healthy product pipeline coupled with expanding sales force will generate substantial top-line improvement in 2016.

Exactech is keen on commercializing the Vantage total ankle product in the second half of 2016. Moreover, the recent launch of Acapella One Cervical Spacer System is expected to drive revenues in 2016.

For full-year 2016, adjusted EPS is anticipated in the $1.15–$1.19 band.

For the third quarter of 2016, management anticipates revenues in the band of $58–$60 million. Adjusted EPS is projected in the range of 21 cents to 23 cents.

Zacks Rank and Key Picks

Currently, Exactech has a Zacks Rank #3 (Hold).

Better-ranked stocks in the medical sector are Masimo Corporation (NASDAQ:MASI) , Mesa Laboratories Inc. (NASDAQ:MLAB) and Natus Medical Inc. (NASDAQ:BABY) . All the three stocks sport a Zacks Rank #1 (Strong Buy).