Hanger Announces Financial Results for the First Quarter of 2019

AUSTIN, Texas--(BUSINESS WIRE)-- Hanger Inc. (NYSE: HNGR), a leading provider of orthotic and prosthetic (O&P) patient care services and solutions, today announced its financial results for the first quarter ended March 31, 2019.

Financial Highlights for the First Quarter of 2019

• Net revenue was $236.4 million for the three months ended March 31, 2019, compared to $234.0 million for the same period in 2018, reflecting a net revenue increase of 1.0 percent year-over-year.
• GAAP net loss totaled $7.0 million for the three months ended March 31, 2019, compared to a net loss of $22.6 million for the same period in 2018. The net loss in the first quarter of 2018 included the impact of a $17.0 million pre-tax loss on the extinguishment of debt as well as higher interest expense compared to the first quarter of 2019.
• GAAP loss from operations totaled $2.0 million for the three months ended March 31, 2019, compared to income from operations of $0.6 million for the same period in 2018.
• Adjusted EBITDA was $11.9 million in the first quarter of 2019, compared to $16.2 million for the same period in 2018, reflecting a decrease of $4.3 million. The decline in Adjusted EBITDA was driven primarily by expected increases of $1.8 million in benefits expense and $1.0 million in rent expense, as well as expected lower margins within the Products and Services segment.
• GAAP loss per share was ($0.19) for the first quarter of 2019, compared to a loss per share of ($0.62) for the same period in 2018. The reduction in GAAP loss per share related primarily to the prior year refinancing costs, a reduction in interest expense and lower third party professional fees.
• Adjusted diluted loss per share was ($0.16) for the three months ended March 31, 2019, compared to loss per share of ($0.13) for the same period in 2018.
• The Company reaffirmed its 2019 financial outlook (see "2019 Outlook" within this release).

Vinit Asar, President and Chief Executive Officer of Hanger, Inc., stated, "While revenue growth in the quarter was below our expectations, we believe this relates primarily to the timing of our prosthetics deliveries. As a result, we are reaffirming both our revenue and earnings guidance for 2019. We remain positive in our view of the demand for our O&P services, strength in our referrals patterns, and the overall industry fundamentals."

Complete reconciliations of GAAP to non-GAAP financial measures are provided in the tables located at the end of this press release.

Segment Results for Three Months Ended March 31, 2019

Patient Care Segment

For the three months ended March 31, 2019, Patient Care net revenue was $190.6 million, an increase of $2.1 million or 1.1 percent, compared to the same period in 2018. Growth on a reported basis was attributed to $4.8 million of revenue during the quarter from O&P clinics acquired in late 2018 and early 2019.

After adjusting for one less revenue day in the first quarter, same clinic revenue for the three months ended March 31, 2019 was consistent with the prior year period. Revenue from prosthetic services decreased 0.7 percent on a day-adjusted basis compared to the prior year and revenue from orthotics increased by 0.9 percent on a day-adjusted basis.

Income from operations in the Patient Care segment was $15.8 million during the first quarter of 2019, which reflected a $1.3 million decline, compared to $17.1 million reported in the prior year. Adjusted EBITDA for the segment was $21.4 million, which reflected a $1.6 million or 7.0 percent decline compared to the $23.0 million reported in the prior year period. Results reflected higher health benefit and rent expenses as compared with the prior year period, with the Patient Care segment bearing $1.5 million of the Company's $1.8 million increase in benefits costs and $0.9 million of the $1.0 million total increase in rent expense. Benefits costs are inherently volatile from one period to the next as they are dependent on the Company's underlying claim experience, which was favorable in the first quarter of 2018. Of the total rent increase, $0.3 million related to the adoption of the new lease accounting standard, Accounting Standards Codification (ASC) 842, and the remainder of the increase related to rent increases and completed acquisitions.

Products & Services Segment

For the three months ended March 31, 2019, Products & Services net revenue totaled $45.8 million, which reflected a $0.3 million, or 0.7 percent increase compared to the same period in 2018. Revenue growth was driven by a $1.8 million, or 5.9 percent increase from the distribution of O&P componentry to independent providers, which was partially offset by a $1.5 million decrease in revenue from therapeutic solutions.

Income from operations for the Products & Services segment decreased by $1.8 million to $4.1 million in the first quarter of 2019 compared to the same period in 2018. Adjusted EBITDA for the Products & Services segment was $6.9 million for the first quarter of 2019, which reflected a $1.8 million decrease compared with the same period of 2018. The decline in therapeutic solutions revenue as well as lower margins within O&P distribution impacted segment earnings in the quarter.

Corporate & Other

The loss from operations relating to corporate and other activities decreased by $0.5 million to $21.8 million for the quarter ended March 31, 2019 compared to the same period in 2018. This decrease primarily related to a $2.1 million reduction in professional accounting and legal fees year-over-year. Excluding the effect of excess third party professional fees, depreciation and amortization, certain acquisition related transaction costs and non-cash equity compensation expense, the net cost of corporate and other activities increased by $1.0 million to $16.4 million in the first quarter of 2019. Increases in costs for Corporate & Other activities related primarily to initial planning for the implementation of new financial and supply chain systems as well as an increase in compensation costs, franchise tax expense and other tax-related costs.

Net Income; Interest Expense

For the three months ended March 31, 2019, net loss was $7.0 million compared with a net loss of $22.6 million in the same period in 2018. The $15.7 million improvement in net income year-over-year was due primarily to a $17.0 million pre-tax loss on the extinguishment of debt associated with the 2018 debt refinancing as well as decreases in interest expense.

Liquidity

On March 31, 2019, the Company had liquidity of $115.3 million, comprised of $20.5 million in cash and cash equivalents, and $94.8 million in available borrowing capacity under its revolving credit facility, compared to liquidity of $189.2 million on December 31, 2018.

The decrease in liquidity was primarily attributable to the use of $36.5 million for the payment of annual incentive bonuses, tax payments on stock vesting, and the employer 401(k) matching contribution, the use of $27.7 million for an acquisition closed in the first quarter, and a $5.6 million net reduction in accounts payable.

2019 Outlook

Hanger reaffirms its full-year 2019 net revenue and Adjusted EBITDA outlook as follows:

Revenue in a range between $1.075 billion and $1.105 billion, and Adjusted EBITDA in a range between $121 million and $126 million.

Hanger's financial outlook for 2019 does not incorporate contributions from potential future acquisitions. Adjusted EBITDA is provided on a non-GAAP basis only because a reconciliation to the most comparable GAAP financial measure, net income, is not available without unreasonable effort due to the unpredictable nature of reconciling items that render such a reconciliation not meaningful for investors.

Conference and Webcast Details

Hanger’s management team will host a conference call tomorrow, Thursday, May 9, at 8:30 a.m. Eastern time to discuss the Company’s first quarter 2019 financial results and business outlook.

To participate, dial 877-407-6184 or 201-389-0877 outside the U.S. and Canada, and use conference code number 13689515. A live webcast and replay of the call will be available at the Investor Relations section of the Company’s web site at https://investor.hanger.com/events/conferences-and-corporate-access/default.aspx, and a replay of the webcast will remain available for one year.

Additional Notes

A reconciliation of GAAP and non-GAAP financial results is included in the tables provided at the back of this press release. The Company has provided certain supplemental key statistics relating to its results for certain prior periods. These key statistics are non-GAAP measures used by the Company’s management to analyze the Company’s business results that are being provided for informational and analytical context.

Accompanying supplemental information will be posted to the Investor Relations section of Hanger’s web site at www.hanger.com/investors.

About Hanger, Inc. – Built on the legacy of James Edward Hanger, the first amputee of the American Civil War, Hanger, Inc. (NYSE: HNGR) delivers orthotic and prosthetic (O&P) patient care, and distributes O&P products and rehabilitative solutions. Hanger's Patient Care segment is the largest owner and operator of O&P patient care clinics with approximately 800 patient care locations nationwide. Through its Products & Services segment, Hanger distributes O&P devices, products and components, and provides rehabilitative solutions. With over 150 years of clinical excellence and innovation, Hanger's vision is to lead the orthotic & prosthetic markets by providing superior patient care, outcomes, services and value. For more information on Hanger, visit www.hanger.com.

This press release contains certain “forward-looking statements” relating to the Company. All statements, other than statements of historical fact included herein, are “forward looking statements.” These forward-looking statements are often identified by the use of forward-looking terminology such as “preliminary,” “intends,” “expects,” “plans,” “anticipates,” “believes,” “views” or similar expressions and involve known and unknown risks and uncertainties. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks, and uncertainties, and these expectations may prove to be incorrect. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. These uncertainties include, but are not limited to, the risk of our identified material weaknesses in the Company’s internal control over financial reporting adversely affecting its ability to report its financial condition and results of operations in a timely and accurate manner; any litigation relating to the Company’s accounting practices, financial statements and other financial data, periodic reports or other corporate actions; changes in the demand for the Company’s O&P products and services; uncertainties relating to the results of operations or recently acquired O&P patient care clinics; the Company’s ability to enter into and derive benefits from managed-care contracts; the Company’s ability to successfully attract and retain qualified O&P clinicians; federal laws governing the health care industry; uncertainties inherent in investigations and legal proceedings; governmental policies affecting O&P operations; and other risks and uncertainties generally affecting the health care industry. For additional information and risk factors that could affect the Company, see its Form 10-K for the year ended December 31, 2018 as filed with the Securities and Exchange Commission. The information contained in this press release is made only as of the date hereof, even if subsequently made available by the Company on its website or otherwise.

EBITDA is defined as operating income before depreciation and amortization. Adjusted EBITDA is defined as operating income before certain charges, impairments of intangible assets, third-party professional fees in excess of normal amounts incurred in connection with our financial statement remediation, debt extinguishment costs, expenses associated with equity-based compensation, severance expenses and certain expenses incurred in connection with our acquisitions.

We use EBITDA and Adjusted EBITDA as measures to assess the relative level of our indebtedness and our compliance with certain debt covenants which are based on these measures. Additionally, we utilize these measures to assess our operating and financial performance. We believe that these measures enhance a user’s understanding of normal operating income excluding certain charges, depreciation and amortization.

Neither EBITDA or Adjusted EBITDA are measures of financial performance computed in accordance with Generally Accepted Accounting Principles (“GAAP”) and should not be considered in isolation nor as a substitute for operating income, net income, cash flows from operations, or other statement of operations or cash flow data prepared in conformity with GAAP, or as a measure of profitability or liquidity. In addition, the calculation of EBITDA and Adjusted EBITDA is susceptible to varying interpretations and calculations, and the amounts presented may not be comparable to similarly titled measures of other companies. EBITDA and Adjusted EBITDA may not be indicative of historical operating results, and we do not intend these measures to be predictive of future results of operations.

Earnings Per Share (or “EPS”) is defined as net income divided by our diluted common shares during the applicable period. Adjusted EPS is defined as EPS adjusted for impairments of intangible assets, third-party professional fees in excess of normal amounts incurred in connection with our financial statement remediation, debt extinguishment costs, severance expenses and certain other charges.

We utilize Adjusted EPS to assess our operating and financial performance. We believe that this measure enhances a user’s understanding of normal operating results excluding certain charges.

Adjusted EPS is not a measure of financial performance computed in accordance with GAAP and should not be considered in isolation nor as a substitute for operating income, net income, cash flows from operations, or other statement of operations or cash flow data prepared in conformity with GAAP, or as a measure of profitability or liquidity. In addition, the calculation of Adjusted EPS is susceptible to varying interpretations and calculations, and the amounts presented may not be comparable to similarly titled measures of other companies. Adjusted EPS may not be indicative of historical operating results, and we do not intend these measures to be predictive of future results of operations.

EBITDA is defined as operating income before depreciation and amortization. Adjusted EBITDA is defined as operating income before certain charges, impairments of intangible assets, third-party professional fees in excess of normal amounts incurred in connection with our financial statement remediation, debt extinguishment costs, expenses associated with equity-based compensation, severance expenses and certain expenses incurred in connection with our acquisitions.

We use EBITDA and Adjusted EBITDA as measures to assess the relative level of our indebtedness and our compliance with certain debt covenants which are based on these measures. Additionally, we utilize these measures to assess our operating and financial performance. We believe that these measures enhance a user’s understanding of normal operating income excluding certain charges, depreciation and amortization.

Neither EBITDA or Adjusted EBITDA are measures of financial performance computed in accordance with Generally Accepted Accounting Principles (“GAAP”) and should not be considered in isolation nor as a substitute for operating income, net income, cash flows from operations, or other statement of operations or cash flow data prepared in conformity with GAAP, or as a measure of profitability or liquidity. In addition, the calculation of EBITDA and Adjusted EBITDA is susceptible to varying interpretations and calculations, and the amounts presented may not be comparable to similarly titled measures of other companies. EBITDA and Adjusted EBITDA may not be indicative of historical operating results, and we do not intend these measures to be predictive of future results of operations.

EBITDA is defined as operating income before depreciation and amortization. Adjusted EBITDA is defined as operating income before certain charges, impairments of intangible assets, third-party professional fees in excess of normal amounts incurred in connection with our financial statement remediation, debt extinguishment costs, expenses associated with equity-based compensation, severance expenses and certain expenses incurred in connection with our acquisitions.

We use EBITDA and Adjusted EBITDA as measures to assess the relative level of our indebtedness and our compliance with certain debt covenants which are based on these measures. Additionally, we utilize these measures to assess our operating and financial performance. We believe that these measures enhance a user’s understanding of normal operating income excluding certain charges, depreciation and amortization.

Neither EBITDA or Adjusted EBITDA are measures of financial performance computed in accordance with Generally Accepted Accounting Principles (“GAAP”) and should not be considered in isolation nor as a substitute for operating income, net income, cash flows from operations, or other statement of operations or cash flow data prepared in conformity with GAAP, or as a measure of profitability or liquidity. In addition, the calculation of EBITDA and Adjusted EBITDA is susceptible to varying interpretations and calculations, and the amounts presented may not be comparable to similarly titled measures of other companies. EBITDA and Adjusted EBITDA may not be indicative of historical operating results, and we do not intend these measures to be predictive of future results of operations.

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