Exactech CEO Discusses Q4 2010 - Earnings Call Transcript

| About: Exactech, Inc. (EXAC)

Exactech Inc. (NASDAQ: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

Operator

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.

Our gross margin percentage expansion during the full year from 63.3% to 66.4% was ahead of our original estimates, and we expect to continue to increase gross margin by 1 to 2% for 2011. One of the key reasons for the increase in gross margin percentage is the conversion to direct sales operations in certain markets that we discussed throughout 2010. This comes with it a large increase in sales and marketing costs as we incurred infrastructure expenses associated with those operations. These infrastructure expenses as well as the international bad debt expense mentioned previously are the primary drivers of the 34% increase in sales and marketing costs during the fourth quarter. During 2011, we expect sales and marketing costs to increase between 15 to 20% as we will have a full year of the infrastructure costs that started during the second quarter of 2010.

G&A expenses decreased by 34% during the fourth quarter to 5.2 million primarily due to the fact that $3 million in DOJ settlement charges were recognized in the fourth quarter of 2009. During 2011, we expect G&A expenses to increase in the range of 18 to 22% as we are projecting $5 million in HCP compliance and legal expenses, including our settlement-mandated monitorship. The projection of $5 million for compliance activities and monitor-related expenses is a very rough estimate based on our expectations as of today, so it is our intention to continue to separate these costs on a non-GAAP basis. This total compares to 1.3 million in compliance and legal costs in 2010 and represents the bulk of our G&A spending increase projection for 2011.

R&D expenditures increased 18% during 2010 and 17% for the fourth quarter, and we expect these costs to continue to increase in the 15 to 18% range for the full year of 2011.

Our total operating expenses increased 11% for the full year and 13% for the fourth quarter; and as a result of the additional compliance expenses and full year experience of international infrastructure costs, we are projecting that the total operating expenses will increase between 13 to 17% for 2011.

Our effective tax rate for the fourth quarter was 34%, and it was 43% for the full year as the fourth quarter rate was positively impacted by the reinstatement of the R&D tax credit. We are expecting a full year tax rate ranging from 34 to 36% for 2011 due to positive impacts as a result of our international operations.

Based on the expectations that we have outlined, this translates to a full year diluted EPS projection of $0.86 to $0.94 on a GAAP basis, and $1.10 to $1.18 on a non-GAAP basis.

From a balance sheet perspective, we made a number of major investments in 2010 including our vertical and product line acquisitions, including the Silverbolt asset from VertiFlex as well as our international direct operation startup. This resulted in an increase in our outstanding credit line to 37.5 million as of year-end, and we currently have 17.5 million available on our $55 million total credit line facility. We expect modest increases in inventory and the credit line through the first half of 2011, at which time we expect to turn cash flow positive in the second half of 2011. A key focus for this year will be to deliver return on many of the investments that we have made over the last two years and deliver positive cash flows from these investments.

As to our revenue guidance, we have targeted full year 2011 revenue of 202 to 210 million, which represents a 6 to 10% top line growth and roughly twice the industry expectations. Our revenue guidance for the first quarter of 50.5 to 52.5 million represents a 3 to 7% increase which is expected to result in first quarter diluted GAAP EPS that ranges between $0.19 and $0.21.

In summary, we closed 2010 with nice top line momentum and we are optimistic that we can carry that into 2011 and translate it into leverage in the bottom line on a non-GAAP basis. Thanks for your time this morning.

Bill Petty

Lisa, it’s time for our questions.

Question and Answer Session

Operator

Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you have a question, please press the star followed by the one on your touchtone phone. If you would like to withdraw your question, please press the star followed by the two; and if you are using speaker equipment, please lift the handset before making your selection.

Our first question comes from the line of Bill Plovanic with Canaccord Genuity. Please go ahead.

Bill Plovanic – Canaccord Genuity

Great, thank you. Good morning, gentlemen.

Bill Petty

Hi Bill. Good morning.

Bill Plovanic – Canaccord Genuity

Just a question – so hip was extremely strong in the quarter. I think that’s the best quarter you’ve ever posted for that division. How much of that was sales into the new hip in Germany versus stocking versus just ongoing business? What I’m trying to get a feel here for is we’ve seen in the hip business a lot of lumpiness historically, and I’m wondering is this a new base to trend off of; or how should we look at the hip business going forward?

Jody Phillips

Let me try to position it, Bill. There was not significant stocking orders and while we’re getting a pretty solid contribution from our German hip business, it still is not an overly material part of that total. So on one hand, I think it’s pretty much good solid base business. We’re certainly not signing up for 20%-type growth on a go-forward basis, but we do think we can settle in comfortably at double the market type growth rate in hips, possibly somewhere in the 8 to 14% neighborhood for 2011.

Bill Plovanic – Canaccord Genuity

But I guess my question, Jody, is more if you did 8.2 million, is that the base that we run this business off of now?

Jody Phillips

You know, Bill, it’s a lot more due to what’s going on in specific markets and specific sites in the U.S., so I’m a little cautious to have you run off of that base currently. I can tell you that we’re not any major stocking orders in the quarter, so it was a little stronger than we expected but I just want to be a little conservative about the expectations going forward.

Bill Plovanic – Canaccord Genuity

Okay. And then on the spine business, was that actually up year-over-year, the implant piece of the spine business?

Jody Phillips

The implant—you know, we don’t really break out those two numbers from bio and spine, but we can tell you that spine definitely contributed to our growth of that segment in 2010, and that was both obviously due to the addition of the Silverbolt and the other assets that we acquired from VertiFlex as well as stability in our legacy products.

Bill Plovanic – Canaccord Genuity

And I know you don’t break it out, but I think if I remember it correctly RTI commented and said that maybe your sales to them, or sales for them, were soft. Is the biologics business kind of flattening out here? I mean, that used to be a big grower for you a couple of years back and really the driver. Is that kind of we should expect maybe a transition to the implants driving it rather than the biologics going forward?

David Petty

Bill, it’s David. A couple of comments about that – first of all, bear in mind that our biologics business has products that are non-RTI products in it, and you’ll recall that for the last several years, especially 2009 when we grew at better than 20% with biologics business, that it was the Optecure and Accelerate product lines that were driving that growth. Part of our issue with biologics being soft – and you’re right, our biologics business is soft and no comment about breaking that down between RTI products and non-RTI products – but we did set ourselves up with some pretty tough comps throughout 2010 as compared to 2009. We did see some competitive pressure, as I mentioned at your conference two weeks ago, from the stem cell allograph materials on the market. They may have had an effect. We obviously have our own stem cell product – an autologous stem cell product – and we actually believe that that’s a better way to go. And we did lose one major distributor in 2010 in the second quarter, and that put a lot of pressure on us also. The transition outside the United States basically meant that one of our biggest customers outside the U.S. was not buying from us for about three-quarters of the year. If you add all that together, it just put a lot of pressure on us. We feel good about the fundamentals of the biologics business and we feel good about the prospects for growth on a go-forward basis, though we expect to have still a little bit of comparative pressure on us for the first quarter of this year. After that, we would expect it to return to contributing to the growth.

Bill Plovanic – Canaccord Genuity

Okay. And then last question here – as you kind of look at the business, just U.S., OUS. I think the U.S. had good growth all year; the OUS was a little lumpy Q3, Q4 was back to normal. What percent of the business internationally now is direct versus stocking?

David Petty

Currently it’s slightly over 50%, between like 50 to 55%.

Bill Plovanic – Canaccord Genuity

Great. Hopefully that will remove some of that lumpiness. Great. Thank you very much.

David Petty

Thanks, Bill.

Operator

Your next question comes from the line of Jeff Johnson with Robert W. Baird. Please go ahead.

Jeff Johnson – Robert W. Baird

Thanks. Good morning, guys.

Bill Petty

Good morning, Jeff.

Jeff Johnson – Robert W. Baird

Dr. Petty, I’m going to have to flash your estimates here after you brought up that spring comment, given that I’m sitting here staring at about 18 inches of snow on the ground.

Bill Petty

My condolences, Jeff!

Jeff Johnson – Robert W. Baird

Yeah, I’m sure you feel bad for me. A couple things here – Jody, a lot of moving parts, obviously, on some of the DOJ expense and where you’re guiding gross margins and the rest of the OPEX lines. As I’m kind of playing with my model here during the call, it looks like to me—are you guiding somewhere in the neighborhood of 100 to maybe 150 basis points of operating margin expansion if we ex-out all the DOJ-related expenses?

Jody Phillips

Yes. If you ex-out the DOJ expenses, it is an expansion such as that.

Jeff Johnson – Robert W. Baird

Okay, so more in there. And then on the tax rate, the difference between the 35 and the 37%, what gets you the high end and low end of that range for the year? Is that just geographic mix?

Jody Phillips

It is largely geographic mix, that’s correct.

Jeff Johnson – Robert W. Baird

And I think—are you saying 34 to 36? I think I missed some data there.

Jody Phillips

I’m saying 34 to 36. There’s a little bit of complexity there with some of our profitability in our global offices, and to the extent that you have losses and they’re not deductible like we experienced in the third quarter, that can move us in that range. But our best estimate is 34 to 36, and probably the biggest driver is the mix of OUS business.

Jeff Johnson – Robert W. Baird

All right, great. And then can you remind me just, Dr. Petty, where you are in Japan with the Novation launch, and how much does that product line alone help you in 2011?

Bill Petty

Well, we got the Novation approval in Japan. That, of course, was a long and arduous process; and we are very excited about that. In Japan, hip still far outpaces the knee from the standpoint of ratio of hip to knee, unlike in the United States and even beginning in Europe and some other places. So until recently, most of our revenue in Japan has been with the knee, so we were not really participating to a significant degree in the hip market. So we’re pretty optimistic about that and excited about the progress in Japan.

Jeff Johnson – Robert W. Baird

All right. And Jody, as I look at your 8 to 14% hip growth guidance for 2011, is it fair to think Japan is probably, I don’t know, maybe 300 plus or minus basis points of that growth? That’s how it seems to play out in my model, anyway.

Jody Phillips

Oh, gosh Jeff. You’re poking me. It’s probably at least that much, yeah.

Jeff Johnson – Robert W. Baird

At least that much, just the hip number? Okay. And then last question, I guess – it sounded like—I think David, it might have been your comment about stability in the legacy spine products. Is it fair to think of spine implants ex-the Silverbolt have been flat for the quarter, for the last few quarters, and Silverbolt is what drove the spine growth this quarter?

David Petty

Certainly Silverbolt made a big difference; but bear in mind, we’ve been saying for two and a half years, we’ve tried to a product development engine running with the spine and start to get a broader scope of products, good products, in the bag and that will allow us to then go out and recruit more effective sales people. And certainly now—this year we’re going to launch three products that were developed internally by our team here at Exactech. The Octane PEEK interbody system is being launched this quarter, and then the second quarter we have the Proliant polyaxial pedicle screw system; and then the second half of the year the Gibralt posterior cervical system. So we take all of that on top of the small baseline of products we’ve already had and add Silverbolt to it, and we start to feel pretty good about starting to have a product line that will be more attractive to higher quality sales people and our potential for Europe throughout 2011 and beyond.

Jeff Johnson – Robert W. Baird

All right, great. That’s helpful. Thanks David.

Bill Petty

Thank you, Jeff.

Operator

And we have a question from the line of James Sidoti with Sidoti & Company. Please go ahead, sir.

James Sidoti – Sidoti & Company

Good morning. Can you hear me?

Bill Petty

Loud and clear.

James Sidoti – Sidoti & Company

Great, great. Can you give me a little more color on the legal expenses, just exactly what goes into that $5 million and how long do you think it will last at that level?

Bill Petty

Jim, those expenses include both increases in our internal compliance cost as well as payments to the outside legal counsel which mostly—not legal counsel, outside lawyers, mostly to the monitor, though we still have some expenses from our own counsel through that process as well. From the standpoint of how we expect that to break out in the year, we expect it to be a little higher in the first half of the year than we do in the second half of the year. That’s primarily because the monitor came in and really knew little about our business or even about the orthopedic business, so a lot for them to learn; and of course, they’re charging us by the hour while they’re learning that. So we do believe those expenses will be higher the first and second quarters than they are the third and fourth.

James Sidoti – Sidoti & Company

Okay. Now, where do you think that expense goes in 2012?

Bill Petty

In 2012, assuming we do all the things we need to do to end the DPA area on December 7, 2011, we then will move into the requirements of our Corporate Integrity Agreement with the Office of Inspector General. We’re actually in that now, but at least for us and I think as is typical, most of the requirements of that are suspended during the monitorship because—I’m assuming because they believe that the monitor is dealing with the issues they would normally deal with. So our goal, Jim, is to get everything in place to meet all the requirements of our deferred prosecution agreement, but at the same time get everything in place that we will be in full compliance with our Corporate Integrity Agreement and all the requirements of the OIG. So that’s a longwinded answer.

Your question was how much do I expect it to cost next year compared to this year, and frankly I don’t know. Let me say, being an eternal optimist, I don’t expect it to be higher. I hope it would be a little lower but as Jody said in his opening remarks, that’s one of the reasons that we’ve continued to keep it separated out because it’s relatively unpredictable; and I’ll see if Jody has any other thoughts about that.

Jody Phillips

I don’t have anything to add. It’s a number that we felt like we needed to put out there, so we had an estimate, but we’re not in control of that process, as you guys know, and it’s very difficult to predict. So I don’t have anything else to add.

James Sidoti – Sidoti & Company

Okay, great. Thank you.

Operator

And ladies and gentlemen, as a reminder, if you would like to ask a question, please press the star followed by the one at this time. If you are using speaker equipment, you will need to lift the handset before making your selection.

Our next question is a question from the line of Robert Gold with Brigantine Advisors. Please go ahead.

Robert Gold – Brigantine Advisors

Thanks. Good morning, guys.

Bill Petty

Good morning.

Robert Gold – Brigantine Advisors

Just a quick question on the OUS bad debt expense in the quarter. Is there any particular geography or distributor behind that number, or is this kind of a widespread issue that we should keep our eye on?

Jody Phillips

It is specific to a few markets. We don’t want to get into the details there, but we don’t think it’s a widespread deterioration in our international business. So it certainly is targeted at a couple of markets, and again, we don’t foresee it being as material in the coming quarters.

Robert Gold – Brigantine Advisors

Okay. Appreciate that. And just on the gross margin, it was pretty materially above our model, so I was just—and I apologize, I didn’t catch the gross margin guidance for ’11. But any unusual variances that hit the quarter, or is this some kind of a base that we can model in going forward? And again, I apologize I didn’t get the number there.

Jody Phillips

No problem. I believe going into the year, we projected about 100 to 200 basis points increase in gross margin, and that was primarily due to the international direct startups that we had created where we have a gross-up of the sales price. In terms of can it be a base, certainly factored into our guidance for 2011 in terms of this 1 to 2% increase, it puts us in the same neighborhood. So I think the fourth quarter typically is a pretty strong gross margin quarter, but it’s not far off from being a base, for sure.

Robert Gold – Brigantine Advisors

Okay, got you. Just lastly, the revenue guidance bracket, what would you assume—to get to the top and bottom of that range, what are we looking at in terms of procedure growth pricing, particularly in the hips and knees categories? What were the expectations there?

Jody Phillips

I’ll take a stab at that. Number one, we quite often say our results are a lot more about how Exactech performs in the overall market, so I’m not sure how much we are dependent on the procedure growth rates. But I would say it’s predicated upon numbers that we’ve seen in terms of market growth rates that are in the 3 to 4% range, maybe 3 to 4, or 2 to 3; and that’s with a pretty consistent expectation in the industry that there’s about a 1 to 2% pricing impact. So if you want to look at a unit increase, it may be more like 4 to 5.

Robert Gold – Brigantine Advisors

Okay. And extremities pricing – still pretty stable?

Jody Phillips

We have experienced stable extremities pricing during 2010. There was a certain amount of pressure we received in late ’08 and throughout 2009, but that seems to have stabilized at this time.

Robert Gold – Brigantine Advisors

All right. Thanks, Jody. I appreciate it.

Jody Phillips

No problem. Thank you, Robert.

Operator

And we have a question from the line of Chris Sassouni with Eagle Asset Management. Please go ahead.

Chris Sassouni – Eagle Asset Management

Yes, good morning. I was wondering if you could comment a bit about the procedure growth in the market overall; and then separate and apart from that, the reception that you’re getting with your customer base, if you will, in terms of two things. One is their receptivity to you as a vendor, and then number two, their receptivity to you in terms of the products that you’re bringing to them and whether that’s been changing over the last couple of quarters.

David Petty

This is David. I would just repeat what Jody said a minute ago, that at least for hips and knees in terms of unit growth, the 4 to 5% that Jody mentioned, I think is reasonable. And as far as how surgeons are receiving our product in the last couple of quarters and currently, I would say we have a number of things that are to our advantage. I think we’ve demonstrated over now 12 quarters or more consecutively that the technology we offer with our extremities program and the Equinox shoulder system is very attractive to orthopedic surgeons, to shoulder specialists, and generalists who do shoulders; and certainly 32% growth for 2010 bears that out for at least the third or fourth year in a row. And with the products that we’re going to add, line extensions that we’re going to have throughout this year, we think we can stay at the front of that technology curve and expect more surgeons to be attracted to our shoulder business. We have a very unique product with our InterSpace antibiotic spacer for revision of infected total joints, which while it’s a small market it’s absolutely unique and I think gets the attention of surgeons, which gives us the privilege of selling them other products that Exactech has. We’ve had an extraordinarily good reaction to the Optetrak PS Logic knee system, which has been rolling out over the last several quarters and will continue throughout 2011, so we feel very good about that. And in the hip line, we will be launching a few new products this year which I think will be helpful. We’ve had a good reception to our direct anterior approach instrumentation, which has helped us grow our hip units, and you saw we had a very strong performance with our hip business in the fourth quarter.

So I think there are a lot of good things that we’ve done recently, and we will continue to launch new products that will be interesting technology and attract orthopedic surgeons to Exactech.

Chris Sassouni – Eagle Asset Management

If you look at—given the pace of new products that you’re introducing, if you just go back though into some of your older products, those that you’re still selling, is there pricing pressure that’s about equal to the rest of the market or are orthopedic surgeons willing to not put a lot of pricing pressure on your products because you’re coming up with so much innovation?

David Petty

Certainly new technology can help protect pricing. I don’t think Exactech has any particular advantage in that regard compared to our competitors. I do think we’ve benefited in the last year or so from having less downward pricing pressure based on technology mix, particularly in hips where metal-on-metal became an important part of the market and then fell out of favor. And so we do not have a metal-on-metal hip, and as that mix shifted back to less metal-on-metal I think our competitors felt more pressure than we did.

Now, the flipside to that is several years ago, we did not enjoy price appreciation based on mix when metal-on-metal was very popular. So I think we can expect similar influence of new technology introduction by Exactech in terms of allowing us to protect our pricing, and we do have, I think, a fairly well-distributed pipeline of new products to help us in each of our business segments with respect to using new technology to protect pricing.

Having said all of that, we like our competitors and in this environment certainly expect pricing pressure in general, and we equip ourselves well with the right people to fight the good fight and protect our ASPs across all segments of our business.

Chris Sassouni – Eagle Asset Management

Okay, thank you.

Operator

Once again ladies and gentlemen, if you would like to ask a question, please press the star followed by the one at this time. If you are using speaker equipment, you will need to lift the handset before making your selection.

We have a follow-up question from the line of James Sidoti of Sidoti & Company. Please go ahead.

James Sidoti – Sidoti & Company

Jody, I’m sorry if I didn’t hear this before, but what was the impact to EPS of the $700,000?

Jody Phillips

It’d be roughly $0.04.

James Sidoti – Sidoti & Company

Okay, so that wasn’t taxed?

Jody Phillips

I’m sorry?

James Sidoti – Sidoti & Company

That wasn’t a taxable (inaudible).

Jody Phillips

That was net of taxes, correct.

James Sidoti – Sidoti & Company

Okay. All right, thank you.

Jody Phillips

Yeah, it’d be a four penny impact (audio interference).

James Sidoti – Sidoti & Company

Okay, great. Thank you.

Operator

And I show no further questions at this time. Management, please continue.

Bill Petty

Thanks to everybody for your interest in Exactech and hope you have a wonderful week. Good bye.

Operator

Ladies and gentlemen, this concludes the Exactech Incorporated Fourth Quarter 2010 Earnings conference call. Thank you for your participation and you may now disconnect.

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