Exactech, Inc. Q2 2010 Earnings Call Transcript

Aug. 4.10 | About: Exactech, Inc. (EXAC)

Exactech, Inc. (NASDAQ:EXAC)

Q2 2010 Earnings Conference Call

August 4, 2010 10:00 AM ET

Executives

Bill Petty – Chairman and CEO

Jody Phillips – CFO

Analysts

Jeff Johnson – Robert W. Baird

James Sidoti – Sidoti & Company

Bill Plovanic – Canaccord Wealth Management

Robert Gold – Brigantine Advisors

James Terwilliger – Duncan Williams

Jim Gentrup – Discovery Investment Research

Operator

Good day ladies and gentlemen, thank you for standing by. Welcome to the Exactech Incorporated second quarter 2010 earnings conference call. During today’s presentation, all parties will be in a listen-only mode and following the presentation, the conference will be opened for questions.

(Operator Instructions)

Now I would now like to hand the conference over to Dr. Bill Petty.

Bill Petty

Good morning, thank you for joining for us and thank you for your interest. Jody Phillips is here with me. David Petty who is usually with us is not here today, he is away.

I will begin by reading the disclaimer. This release contains various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and 21E 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 by important factors that could cause 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, the effects of government regulation and other possibilities. Results actually achieved may differ materially from the expected results included in the statements.

For the second quarter of 2010, Exactech is pleased to report revenue of $47.6 million. This is an increase of 10% compared to revenue of $43.3 million in the second quarter of 2009. Net income was up 14% to $3 million compared to $2.6 million in ‘09. This results in earnings per diluted share of $0.23 in 2010 compared to $0.20 in 2009. If we exclude the expenses of $400,000 related to the DOJ inquiry, net income for the quarter was $3.2 million or $0.25 per diluted share.

To look a little bit at our overall segment performance for the quarter, our knee implant revenue increased 2% to $19.4 million. Hip implant revenue increased 9% to $7.3 million. Biologic and spine revenue actually decreased 1% to $6.8 million. Extremity implant revenue was up 40% to $7.1 million and our other products revenue increased 22% to $7 million.

Now I want to look a little bit at the first half of the year. For the first six months of the year revenue was $96.7 million, which is an increase of 12% over $86.6 million for Q2 in ‘09. Net income in 2010 for the first half increased 23% to $6.3 million compared to $5.1 million for the first six months of 2009. This represents an earnings per share of $0.48 for the first half in 2010 compared to $0.40 for the first six months of 2009. Without the DOJ expenses, net income for the six months were $6.6 million or $0.51 per diluted share.

For the six months segment performance, knee implant revenue increased 8% to $40.3 million from $37.4 million. Hip implant revenue increased 5% to $13.9 million from $13.2 million. Biologic and spine revenue increased 2% to $14.2 million from $13.9 million. Extremity implant revenue was up 30% to $14.2 million from $10.9 million in 2009 and our other products revenue increased 27% to $14.1 million compared to $11.1 million in the first half of 2009.

To compare the domestic and the outside U.S. business, for the quarter our U.S. sales rose 12% to $32.8 million compared to $29.2 million in ‘09. Our international sales grew 5% to $14.8 million and this represents 31% of our total sales.

Now for domestic versus U.S. for the six months or the first half, our U.S. sales were up 9% to $65.6 million compared to $60 million in 2009 and for the first six months outside the U.S., our sales increased 17% from $26.6 million to $31.1 million in this year. Sales for the first six months outside the U.S. represented 32% of the total.

We are pleased with our overall performance, business model transition is underway and some of our overseas markets slowed our growth especially in knee sales during the quarter, despite some near-term dislocation created by these changes, we are taking these steps to strengthen our ability to grow our business outside the U.S. and we believe that future results will reflect that. Rebound in our hip sales was stimulated by growing acceptance of our Novation hip system. Sales of our extremities products led by Equinoxe Shoulder continued to be very strong.

The key event for the quarter was the acquisition of Brighton Partners. Brighton is the sole source supplier of the proprietary direct compression molded polyethylene bearings used in our Optetrak knee system. Polyethylene has in the past and will in the future provide negligible wear rates while enhancing mechanical properties of the material. These characteristics provide our surgeon customers and their patients a long lasting knee replacement bearing.

Our pipeline of new products continues to be strong, we are introducing a number of new products during the second half of this year and several more during 2011.

Now I’m going to ask Jody to give a little more detail about the financial picture. Jody?

Jody Phillips

Good morning everyone and thanks for joining us. The second quarter financial results were largely in line with our expectations. Domestic sales growth continues to outpace the market at 12% and our outside the U.S. sales growth was pretty much in line with market growth rate despite the transitions to direct operations that we talked about earlier in the year.

The mix of U.S. business at 69% of total sales versus 67% in the second quarter of 2009 was a key factor in the increase in our gross margin percentage to 65.5% during the quarter as compared to 62.3% in the second quarter of last year.

The gross margin improvements were also a result of our continuing focus on reducing product cost through increasing our internal manufacturing, we stepped the number for the products that we produce, the knee, hip and shoulder implants that we produced internally, we likely produce around 67% of our total demand internally now.

As of result of this quarter’s performance, we feel that we are on track to deliver the 50 to 100 basis points gross margin improvements that we targeted for 2010. The 15% increase in total operating expenses was consistent with our expectations as we stated last quarter that we expected a 15% to 20% increase in sales and marketing expenses and we came in at roughly 21%. At this point we expect to be in the neighborhood of a 20% to 25% increase in sales and marketing costs for the balance of 2010. G&A spending decreased about 7% during the quarter to $4.2 million primarily due to the $800,000 decrease in compliance and legal cost. The R&D expense increase during the quarter of 27% was consistent with our plan as we have a number of projects that are at key protyping and testing phases.

Our total operating profit increased 17% to $5.1 million and net income increased 14% to $3 million or $0.23 per diluted share.

One factor that continues to impact our net income and the EPS results as compared to our beginning of the year guidance is the expiration of the R&D credit. Our effective tax for the quarter was nearly 41% and we believe that the expiration of the R&D credit has roughly a 2.5% negative impact on that effective rate.

Our inventory total increased by approximately $5 million during the quarter as we continue to prepare for significant product launches and international expansion in the second half of the year. Our total credit line borrowing increased $9.2 million during the quarter as a result of the Brighton Partners and German hip product acquisition and the inventory expansion.

Our accounts receivable decreased by $1.2 million during the quarter although DSO calculated on a quarterly basis actually expanded from 69 to 73 days. In total the quarter ended about where we had projected from a balance sheet perspective.

As to our balance of the year guidance, we have increased the lower end of the full year revenue range to $191 million and that ranges to $197 million on the top end, which represents an 8% to 11% topline growth for the full year. Our revenue guidance for the third quarter of $43 million to $46 million represents a 2% to 9% increase as we expect a more traditional seasonal low in international sales during the third quarter as we have experienced in years past. From a net income standpoint, we have maintained our full year GAAP EPS guidance of $0.92 to $0.98 and released our third quarter guidance of GAAP diluted earnings per share of $0.20 to $0.22. This net income guidance for the third quarter is roughly flat compared to the third quarter of 2009 and once again reflects the more traditionally seasonally low third quarter and a significant ramp up of expenses in our distribution activities outside the U.S. We expect these investments to provide positive results beginning late in the third quarter continuing through 2011. In summary at this point, we feel that we are on track with our plans as we outlined them at the beginning of the year and we continue to appreciate your interest.

Bill Petty

We can open it up to questions now.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Jeff Johnson with Robert W. Baird.

Jeff Johnson – Robert W. Baird

Just wondering if I could start here, extremities, obviously a very good number there, 40% one of your higher growth rates during the last few quarters and the base keeps getting bigger. So just wondering if you can talk about, is that market trends, is that uptick still off the reverse shoulder and then how are you putting up that strong growth there?

Bill Petty

It’s both. I think certainly over the last few years, the technology and the training and technical ability of surgeons for shoulder problems has improved markedly and I think we will continue to see those improvements. And we also believe that Exactech products in that area are leading products and our shoulder and extremity group continues to introduce new advanced products. So I think it’s a combination of the things you mentioned both increasing market for shoulder problems and then we can provide much better outcomes than we could in the past and also the quality and performance of Exactech’s products in that area.

Jeff Johnson – Robert W. Baird

And then if I look at the knee business, obviously you addressed some of the issues there on the distributor changeover going on in Spain and Germany. Can you talk at all to the U.S. performance, some of your larger competitors have talked about a market slowdown there. Did you see that in your U.S. number and maybe address some of the – how uptick seeming to be progressing on the CR Slope and PS Logic knees?

Bill Petty

I will make a couple of comments, then I would ask Jody to comment as well. You have put out the numbers of what you think the market growth is and we would tend to agree with those and domestically ours were in line with those. The PS Logic- there is substantial demand for the PS Logic and in fact – more demand than we anticipated when we introduced the products. So we are working hard to get more of the instrument sets in that product out there. And I would say the same for CR Slope, although the trendline for the CR Slope has not been as rapid early on as the PS Logic, we are seeing an uptick there as well- an increasing interest in that part of our knee product line.

Jeff Johnson – Robert W. Baird

And do you think the Slope trend line you referred to there is primarily just kind of newer product, newer way of doing things, may be harder to just convince the surgeons initially to try something new?

Bill Petty

Absolutely, it’s a new concept and it is a concept, it allows the surgeon more assurance in maintaining the function of posterior cruciate ligament in doing that in a different way by providing them adjustability within the prosthesis. So yes it’s a new concept. I have personally have called it the most significant advanced in cruciate retaining knees over thelast decade or two. I believe that I may be of course slightly biased but I do believe that’s a major advance and often with major advances, it takes some education to get it ramped up where you want it to be.

Jeff Johnson – Robert W. Baird

Jody, how does that U.S. performance --it sounds like U.S. knees were down, kind of, – were up but in the low single digit range, how does that compare to maybe Q1. And number two, does your guidance assume that the R&D tax credit is reinstated by year end?

Jody Phillips

The first question, the growth in the U.S. knee segment was very consistent with the first quarter and it’s probably a point or two higher than the domestic knee growth rate for the market that I have seen published. So I think there is still mid single digit type growth rate there, which obviously leads you, you can do the math, we have a slight reduction in our revenues outside the U.S. with knee in the second quarter and all that’s for the reasons that we mentioned. And relative to our guidance, at this point that does assume that the R&D credit does get reinstated.

Jeff Johnson – Robert W. Baird

And in the international knee business, the declines there, you assume that’s just – were those inventory returns, so that’s kind of a one-off, they worked through the P&L or is that something else going on, how is business retentions and on those, the direct sales versus the prior distributed sales?

Bill Petty

You are asking a lot of questions there. First of all, not returns. But let me just explain it a bit, we have set up an organization and our organization began operating only two weeks ago. So we were doing all the set up phase prior to that obviously. Our former distributor was continuing to supply their customers, our customers up until that time. But recognizing that they were not going to continue to distribute that product after two weeks ago, their orders were down substantially in the second quarter either compared to the first quarter or the second quarter last year. So that’s really the reason for the drop off.

And then the final part of your question was how are things going in the ramp up. For two weeks we had a marked increase second week compared to the first and in fact I said in a meeting here, If we could continue that for several weeks, we are going to be in great shape. But again, this is a very slow period in the market in Europe as you know because of vacation time. So we actually think it’s a very opportune time for us to be making this transition because it allows us to get everything in place, have a slow ramp up for the first, let’s say six weeks and then be really ready to go in the early fall when the business takes off there again.

Jody Phillips

Jeff, if you look at the outside the U.S. knee revenue exclusive of the markets where we have transitions going on, there is solid growth there. I think that’s the point you are getting at.

Operator

And our next question comes from the line of James Sidoti with Sidoti & Company.

James Sidoti – Sidoti & Company

In terms of the Brighton Partners acquisition, how do we think of that? I mean obviously most of their sales were to Exactech, so should we expect, I wouldn’t think we would expect much on the revenue line but should that improve your margins going forward?

Bill Petty

All of the sales were to Exactech and I will let Jody answer the margin question.

Jody Phillips

I think the best way I would position it, obviously our primary reason for doing that acquisition was a strategic one, not so much financial. With that being said, it is a financially attractive proposition as well, we do think there is opportunity for margin improvement, most of that will probably present itself in 2011, but I would not characterize it as being a detriment to 2010 as well. So it’s basically a wash to 2010 and we think it puts us in a pretty good position to continue to modestly expand our margins next year. But most importantly it stabilizes our supply chain there.

James Sidoti – Sidoti & Company

Okay. And then just going back to the international sales, do you think your international growth rate gets back to close where you had it by the fourth quarter or do you think you – it take a little bit longer, you think it takes some time in 2011 before you see that come back?

Jody Phillips

Well I think we said on many calls there has been a lot of I’ll call it lumpiness in the international revenues and part of that is due to the fact that a lot of those revenues are stocking distributor in nature. So to say that we’re going to get back to the 25%, 30% type growth rate that we had in the first quarter, 2010 and the second half of 2009 maybe a little aggressive but I certainly think that we can get back to above market growth rates starting with the fourth quarter of this year and certainly in 2011.

James Sidoti – Sidoti & Company

Okay, great. And then can you just go through what the new products you’re rolling out in the back half of the year will be?

Jody Phillips

Sure, we have pretty significant line extensions related to the Novation Tapered Stem as well as the Novation Crown Cup, the Biolox delta Femoral Head is set for US launch in the fourth quarter of this year. We have the pilot release of our Proximal Fracture Plate in the extremity system, that is ongoing currently and will continue through the third quarter.

There are extensions to the Optecure line of bone graft products in the fourth quarter of this year. and then I think Dr. Petty has already referenced that we’re having our more full scale release of the PS Logic where we are targeting to rollout 50 to 60 sets during the second half of this year.

James Sidoti – Sidoti & Company

All right, and then just my last question is currency, it seems like with this shift towards direct distribution you have more of a natural hedge in place then you did say a year ago, but with the dollar now, or Euro and the dollar, what’s the impact of currency for the rest of the year?

Jody Phillips

With the rates where they are right now we will be roughly on par and there will not be a significant currency impact. Who knows obviously where it’s going to go and it was really negligible in the second quarter and that’s why we did not reference basically any difference in terms of constant currency growth rates. We have progressed through a period of pretty high spend with not a lot of revenues with those outside-the-US activities so hopefully the Euro will appreciate once we start selling.

James Sidoti – Sidoti & Company

Okay, all right. Thank you.

Bill Petty

Yes and if you’ll tell us where it’s going and we can figure it out.

James Sidoti – Sidoti & Company

Or maybe David can when he gets back.

Operator

Thank you. And our next question comes from the line of Bill Plovanic with Canaccord.

Bill Plovanic – Canaccord Wealth Management

Hey thank you, good morning.

Jody Phillips

Hi Bill.

Bill Plovanic – Canaccord Wealth Management

My questions are just on Germany and Spain and going direct in those two countries. Before the transition, what percentage of your overall revenues were those countries and where exactly, you did allude to it but somewhat, but where exactly are you in the process of building out those infrastructures in terms of where you want to get it.

Jody Phillips

I can just kind of give some gross revenues in terms of where they were before, they were probably in the neighborhood of 5% to 6% of total revenue before.

Bill Plovanic – Canaccord Wealth Management

Both or individually?

Jody Phillips

Collectively.

Bill Plovanic – Canaccord Wealth Management

Collectively, okay.

Bill Petty

And in terms of where we are on the build out its clearly a work in progress, I would characterize Germany as a little bit further along just because the scope of those operations and the buildup is a little bit smaller and so we’re pretty much fully functional there and has been functional beginning at the very start of the second quarter and Spain is still on expansion mode.

Jody Phillips

And Bill just I’ll just to it, the infrastructure build in Spain is certainly substantial at this point.

Bill Plovanic – Canaccord Wealth Management

Okay. Actually that’s all I have, thanks.

Jody Phillips

Okay, thank you Bill.

Operator

Thank you. And our next question comes from the line of Robert Gold of Brigantine Advisors. Please go ahead.

Robert Gold – Brigantine Advisors

Thank you. Thanks for taking the question. I guess, I had a quick question on the gross margin guidance. And we look at the back half of the year to get to about 50 to 100 basis points improvement, I guess if I’ll do a quick math we’re looking to get back down towards around the 64% area in the second half, is that what you’re looking at?

Jody Phillips

Well, good morning Robert, it’s Jody. That really that 50 to 100 basis point improvement is a reference for the full year and I believe we were only up about 30 basis points on a year-to-date basis. So it’s more than a 1% expansion in the second half of year, if you look at that in isolation. So the number you threw out 64 sounds a little low specifically assuming the fact that we expect lower international sales as a percent of total in the third quarter. So I would say it’s probably a little higher than that.

Robert Gold – Brigantine Advisors

Okay and just on that the OUS market I know it’s been little choppy and I was just wondering if you can comment on – if the category overseas, categories overseas are declining just a bit is it function of maybe mix or is there some reimbursement issues to play, I know that Japanese reimbursements are coming down, so if you can comment on just on the broader macro environment overseas.

Jody Phillips

I think for us it’s very difficult to comment on that environment because we’re really more subject to the success of each individual market plus their financial capabilities, I think the financial turmoil that we’re at, we’ve had over the last year and a half has caused some of the lumpiness, so it’s really tough to get and end user type market read for us. When we look at our activities outside of the transition that we have going on there is still solid growth there. So we’re pleased with that, now specific to Japan, you are correct, there have been some reimbursement and some pricing decreases there. We’re in a situation where Japan is in ramp up mode for us and performing nicely. We get our first hip product late in the second quarter. So whereas a lot of companies were facing price decreases those were opportunities that we didn’t have before, so it’s gained revenue for us.

Robert Gold – Brigantine Advisors

Okay, thanks. Just one last quickly, if I heard correctly the guidance does include the reinstatement of an R&D tax credit. Is that correct?

Jody Phillips

That is correct and I would, it’s probably about penny per quarter differential.

Robert Gold – Brigantine Advisors

Okay, so okay I got you, so but if it’s not reinstated again the tax rate we could expect to be about 2%, 2.5% of an adjustment it is not reinstated.

Jody Phillips

Yes, if it’s not reinstated we’re going to be probably in that 40% to 41% neighborhood like we were for this quarter.

Robert Gold – Brigantine Advisors

Okay, got you. Okay, thank you very much.

Operator

Thank you. (Operator Instructions) And our next question comes from the line of James Terwilliger with Duncan Williams. Please go ahead.

James Terwilliger – Duncan Williams

Hi guys, can you hear me?

Jody Phillips

Yes, good morning.

Bill Petty

Good morning James.

James Terwilliger – Duncan Williams

First things first. I think it’s a nice quarter considering it’s a difficult environment out there in terms of procedure volumes, but I got a couple of quick questions. with first one going back and this was kind of asked before on the extremities and you had a great number on the extremities so I can’t compliment you enough but could you update me a little bit on the launch of the Equinoxe product here in the United States.

Jody Phillips

I’ll try to do a high level summary. The Reverse, as you know, we’ve had out for a couple of years but we continue to penetrate the market there and that’s not a new product release for this year although it’s a key driver of the growth. We released the Fracture Stem System which was a nice complement to that, the platform fracture stem in the first quarter of this year and that has been a modest contributor to growth. We are in pilot release of the Proximal Fracture Plate this quarter and then the other product that we had in our planning was the Cage Glenoid project that we are now seeing first half of 2011 as we received both design flash testing feedback and some FDA issues.

James Terwilliger – Duncan Williams

Okay, great. Second question, could you tell us a little bit as it relates to maybe strategy, revenue contribution and purchase price of the acquisition that you made in Germany, where you acquired your German distributor.

Jody Phillips

Sure, I can give you the high level on that. We had a presence with our former German distributor there in terms of our knee products. We had a slight presence there - we did not have any hip revenues or really any shoulder revenues to speak of. We actually did not acquire that company, we acquired their hip product lines as well as the customer list for those products that were distributed along with our knee products, and so it was basically a hip product acquisition in the second quarter. And we feel that those are European design hip products that could have presence for us obviously both in Germany as well as throughout Europe. So it was a matter of getting focus on both our knee and shoulder distribution as well as expanding our offerings in the European hip category.

James Terwilliger – Duncan Williams

Okay and I had in my notes that there were 11 employees in this business. Did they come over as well or did I misunderstand that?

Jody Phillips

I’m not sure we’ve actually put an actual number out there, but if you have one I guess we did. That certainly is in the neighborhood and they did come over.

James Terwilliger – Duncan Williams

Okay, thanks. And then my last, next to last question you have the approval of the Novation hip system in Japan and I thought you were on the process of trying to launch that product in the second half of this year. Could you update me on that particular product?

Jody Phillips

Yes, I think I mentioned a minute ago, we did have our first surgery for the Novation hip product late in the second quarter and we’ve built up the release for the initial pipeline of those products early here in the third quarter. So we will be in full scale release during this quarter.

James Terwilliger – Duncan Williams

And in Japan you have a direct distribution organization and you’ve already been selling the knee system, correct?

Jody Phillips

It’s a little bit of a combination. We certainly do have our own direct operations, although we had a former distributor there as well that continues to sell our products in certain markets. So it’s kind of a hybrid.

James Terwilliger – Duncan Williams

Okay and the last thing going back to the gross margins, could you update me on two different areas, one would be on how you’re trying to bring some manufacturing in-house and the second would be, are your COGS prices, ie metal prices in the different materials that you purchased for manufacturing, are those prices, are they stable, increasing or decreasing?

Jody Phillips

I would answer the second one first, the raw material prices I think for the last three quarters had been relatively stable compared to what we were experiencing a year and a half ago and we certainly are continuing to bring different manufacturing operations in-house. In the second half of this year, we are bringing online a key finishing operation related to our knee system that is a new step for us and will continue to allow us to manage our cost.

James Terwilliger – Duncan Williams

All right, great guys. Again I think it’s a very, very good quarter. So what I’m hearing it’s very, very tough out there, so good job.

Jody Phillips

Thank you

Operator

Thank you. (Operator Instructions) And our next question comes from the line of Jim Gentrup with Discovery Investment Research. Please go ahead.

Jim Gentrup – Discovery Investment Research

Hi good morning.

Jody Phillips

Good morning.

Bill Petty

Good morning.

Jim Gentrup– Discovery Investment Research

I just wanted to know a little bit more about the shoulder market going forward. It’s already it’s become a little bit bigger than the hip area already as far as revenue contribution. Could you comment a bit more about how big that opportunity is.

Bill Petty

I’ll let Jody comment as well. First of all for Exactech, yes the shoulder is in line with the hip. In the general market they’re nowhere close. The hip market worldwide is much closer to the worldwide knee market than the shoulder market, so that the shoulder market is still very much I think in a strong growth mode for the reasons I answered earlier, the improvements in technology coming from companies like ours and also the competence of surgeons because they are improving their techniques in understanding how to approach the shoulder problems that they see with their patients. They’re really giving them some very good outcomes. So overall in the market - not for Exactech but overall in the market - shoulder is much smaller than the hip and the knee but is also growing more rapidly.

Jody Phillips

So the specific numbers Jim, I think we challenged both of our business units to grow at two times the market. We’ve obviously got a very good start with the extremity and shoulder projects that brought it on par with the hip already and it is the market that’s growing higher than the hip markets. So as time goes on the extremities may outpace the hip but we are still relatively confident that we can deliver market- to two-times market growth rate from the hip as well.

Jim Gentrup – Discovery Investment Research

Okay and then the other question I have then is on the guidance issue for the second half, using the midpoint of what your guidance is, you can back into basically 7.5% growth and yet you’ve got your products rolling out it seems like you’ve got some investments you’ve made and I know (inaudible) I wanted you to give the comments a little bit more why (inaudible) there.

Jody Phillips

I think it’s – I would characterize it is being realistic based on the activities that we have going on outside the US, I think if we factor out the impact of those transitions we’re going to be at a number north of that 7.5% growth rate and probably be somewhere or this guidance is somewhere closer to two times the market rate. So I think it’s realistic and it is a pretty choppy market out there right now but we do have these activities going on specifically in the third quarter and we’re making the conscientious investments and we think will pay off nicely in the fourth quarter of this year and specifically in 2011.

Jim Gentrup – Discovery Investment Research

Okay, and then there is just 20% to 25% increase in sales and marketing costs for the full year, correct?

Jody Phillips

Yes, that was really more of a comment about the second half of the year. Our year-to-date increase is only

13% to the full year increase which will probably be in the neighborhood of 18% to 22% or 23%.

Jim Gentrup – Discovery Investment Research

Okay, thank you very much.

Operator

(Operator Instructions) And management, I’m showing no further questions in the queue. Please continue with any further remarks.

Bill Petty

Thank you for your participation and your interest in Exactech and we are doing our best to continue to reward your interest and your confidence. Have a great day.

Operator

Ladies and gentlemen, that does concludes the Exactech Incorporated second quarter 2010 earnings conference call. Thank you for your participation, you may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!