BETHESDA, Md., Oct. 25 /PRNewswire-FirstCall/ -- Hanger Orthopedic Group, Inc. announces revenue of $151.5 million and pro-forma net income of $4.3 million, or $0.15 per diluted share, for the quarter ended September 30, 2006, adjusted for the effects of its recent refinancing. In May 2006, Hanger refinanced all of its outstanding bank, bond indebtedness and convertible preferred stock utilizing the proceeds from a $50 million private placement of 3.33% convertible perpetual preferred stock, a new $230 million senior secured term loan and a private offering of $175 million of senior unsecured notes. The Company also established a $75 million revolving credit facility at the close of the transaction that remains fully available. The pro-forma results exclude the $0.5 million cost of extinguishment of the debt incurred in connection with the refinancing and assumes that the new capital structure was in place on January 1, 2006.
Net sales for the quarter ended September 30, 2006 increased by $5.1 million, or 3.5%, to $151.5 million from $146.4 million in the prior year’s comparable quarter. The sales growth was the result of a $2.1 million, or 1.6%, increase in same-center sales in our patient care business, a $2.7 million, or 22.8%, increase in sales of the Company’s distribution segment, and a $0.3 million increase in non-core activities. The increase in same center sales was accomplished despite the fact that there was one less business day in the third quarter of 2006 compared to 2005. Gross profit for the third quarter of 2006 increased by $3.5 million to $75.3 million, or 49.7% of net sales, compared to $71.8 million, or 49.0% of net sales, in the third quarter of the prior year. The increase was due principally to the increase in sales as well as a $0.6 million decrease in labor compared to 2005 as there was one less work-day in the current quarter.
Income from operations of $17.1 million in the third quarter of 2006 was $0.4 million higher than that of the same period of the prior year principally due to the aforementioned increase in gross profit. Selling, general and administrative expenses increased by $3.0 million due principally to a $1.8 million increase in variable compensation accruals and $1.0 million increase in the investments in the Company’s growth initiatives.
Net income applicable to common stock, on a pro-forma basis, for the third quarter of 2006 was $4.3 million, or $0.15 per diluted share, compared to the prior year’s actual $2.8 million, or $0.13 per diluted share. Including the costs of the recent refinancing, the net income applicable to common stock was $1.5 million, or $0.07 per diluted share, for the quarter ended September 30, 2006, compared to a net income applicable to common stock of $2.8 million, or $0.13 per diluted share, in the prior year’s comparable quarter.
Net sales for the nine months ended September 30, 2006 increased by $15.8 million, or 3.7%, to $444.8 million from $429.0 million in the prior year. The sales growth was principally the result of a $7.2 million, or 1.8%, increase in same-center sales in our patient care business, and a $9.3 million, or 28.0%, increase in sales of the Company’s distribution segment. The increases were offset by a $0.7 million decrease as a result of closed patient care centers primarily due to the effects of the hurricanes in 2005. Gross profit for nine months increased by $7.9 million to $223.1 million, or 50.2% of net sales, compared to $215.2 million, or 50.2% of net sales, in the first nine months of the prior year due to the sales increase offset by a $7.9 million increase in the cost of materials due primarily to the increase in external sales of the Company’s distribution segment.
Income from operations increased by $0.2 million in the first nine months of 2006 to $44.0 million from $43.8 million in the same period of the prior year due to an increase in gross profit, offset by an increase in selling, general and administrative expenses. Selling, general and administrative expenses increased by $6.9 million due primarily to a $5.7 million increase in labor costs from merit increases and increased health insurance costs, a $2.7 million increase in the investments in our growth initiatives and a $0.5 million increase in professional fees, offset by a $2.9 million decrease in bad debts.
Net income applicable to common stock, on a pro-forma basis, for the first nine months of 2006 was $9.1 million, or $0.31 per diluted share, compared to the prior year’s actual $5.1 million, or $0.23 per diluted share. Including the costs of the recent refinancing, the net loss applicable to common stock was $8.5 million, or $0.39 per diluted share, for the first nine months of 2006, compared to a net income applicable to common stock of $5.1 million, or $0.23 per diluted share, in the prior year.
Cash flow from operations was $15.9 million in the third quarter of 2006, excluding the impact of the refinancing, compared to the prior year’s actual of $9.6 million. Including the effect of the refinancing, cash flow from operations for the third quarter was $15.2 million, compared to the prior year’s $9.6 million. Cash flow from operations for the nine months ended September 30, 2006, excluding the impact of the refinancing, was $12.9 million compared to the prior year’s actual of $13.4 million. Including the effect of the refinancing, cash flow from operations for the nine month period ended September 30, 2006, was $8.1 million compared to the prior year’s $13.4 million.
Hanger Orthopedic Group, Inc., headquartered in Bethesda, Maryland, is the world’s premier provider of orthotic and prosthetic patient care services. Hanger is the market leader in the United States, owning and operating 619 patient care centers in 46 states including the District of Columbia, with 3,455 employees including 1,032 practitioners (as of 9/30/06). Hanger is organized into four units. The two key operating units are patient care which consists of nationwide orthotic and prosthetic practice centers and distribution which consists of distribution centers managing the supply chain of orthotic and prosthetic componentry to Hanger and third party patient care centers. The third is Linkia which is the first and only provider network management company for the orthotics and prosthetics industry. The fourth unit, Innovative Neurotronics, introduces emerging neuromuscular technologies developed through independent research in a collaborative effort with industry suppliers worldwide. For more information on Innovative Neurotronics, Inc. or the WalkAide, visit http://www.ininc.us. For more information on Hanger, visit http://www.hanger.com.
This document contains forward-looking statements relating to the Company’s results of operations. The United States Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward- looking statements. Statements relating to future results of operations in this document reflect the current views of management. However, various risks, uncertainties and contingencies could cause actual results or performance to differ materially from those expressed in, or implied by, these statements, including the Company’s ability to enter into and derive benefits from managed care contracts, the demand for the Company’s orthotic and prosthetic services and products and the other factors identified in the Company’s periodic reports on Form 10-K and Form 10-Q filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934. The Company disclaims any intent or obligation to update publicly these forward-looking statements, whether as a result of new information, future events or otherwise.
-tables to follow- Hanger Orthopedic Group, Inc. (Dollars in thousands, except share and per share amounts) (unaudited) Three Months Ended Nine Months Ended Income Statement: September 30, September 30, 2006 2005 2006 2005 Net sales $151,549 $146,393 $444,849 $429,047 Cost of goods sold (exclusive of depreciation and amortization) 76,229 74,630 221,790 213,813 Selling, general and administrative 54,569 51,606 167,947 161,041 Depreciation and amortization 3,630 3,409 11,077 10,356 Income from operations 17,121 16,748 44,035 43,837 Interest expense, net 9,852 9,405 29,266 27,649 Extinguishment of debt 537 - 16,953 - Income (loss) before taxes 6,732 7,343 (2,184) 16,188 Provision (benefit) for income taxes 3,274 3,020 (747) 6,714 Net income (loss) 3,458 4,323 (1,437) 9,474 Less preferred stock dividends declared and accretion-7% Redeemable Preferred Stock - 1,491 2,752 4,364 Less preferred stock dividends declared and accretion-Series A 3.33% Convertible Preferred Stock 416 - 583 - Less beneficial conversion feature accretion-Series A Convertible Preferred Stock 1,544 - 3,768 - Net income (loss) applicable to common stock $1,498 $2,832 $(8,540) $5,110 Basic Per Share Data: Net income (loss) $0.07 $0.13 $(0.39) $0.24 Shares used to compute basic per common share amounts $22,030,207 $21,713,704 $21,937,865 $21,663,570 Diluted Per Share Data: Net income (loss) $0.07 $0.13 $(0.39) $0.23 Shares used to compute diluted per common share amounts $29,331,813 $22,325,857 $21,937,865 $22,212,159 Cash Flow Data: Cash flow from operations $15,182 $9,555 $8,108 $13,406 Capital expenditures 2,733 2,525 7,911 6,482 Increase (decrease) in cash 1,243 (775) 6,013 (187) September 30, September 30, Balance Sheet Data: 2006 2005 Cash balance $13,934 $8,164 DSO’s $59 $65 Working Capital $153,557 $138,189 Total Debt $412,377 $386,049 Shareholders’ Equity $162,474 $158,112 Income Statement as a % of Net Sales: Three Months Ended Nine Months Ended September 30, September 30, Net sales 2006 2005 2006 2005 Cost of goods sold (exclusive of depreciation and amortization) 100.0% 100.0% 100.0% 100.0% Selling, general and administrative 50.3% 51.0% 49.8% 49.8% Depreciation and amortization 36.0% 35.3% 37.8% 37.6% Income from operations 2.4% 2.3% 2.5% 2.4% Interest expense, net 11.3% 11.4% 9.9% 10.2% Extinguishment of debt 6.5% 6.4% 6.6% 6.4% Income (loss) before taxes 0.3% - 3.8% - Provision for income taxes 4.5% 5.0% -0.5% 3.8% Net income (loss) 2.2% 2.1% -0.2% 1.6% 2.3% 2.9% -0.3% 2.2% Hanger Orthopedic Group, Inc. (Dollars in thousands, except share and per share amounts) (unaudited) Set forth below is a reconciliation of the non-GAAP pro-forma results of operations and the historical GAAP results of operations as well as the non-GAAP pro-forma cash flow from operations and the historical GAAP cash flow from operations. The Company believes the presentation of the pro- forma results, adjusted for the effects of the recent refinancing, is more reflective of the Company’s current core operating results and provides investors with additional useful information to measure the Company’s on- going performance. Three Months Nine Months Ended Ended September 30, 2006 Income from operations, GAAP basis $17,121 $44,034 Interest expense, net (1) 9,782 28,663 Income before taxes 7,339 15,371 Provision for income taxes 2,998 6,279 Net income, pro-forma $4,341 $9,092 Diluted Per Share Data: Net income, pro-forma $0.15 $0.31 Shares used to compute diluted per common share amounts, for GAAP basis 22,030,207 21,937,865 Effects of dilutive options and restricted stock 687,849 702,369 Effects of conversion of Redeemable preferred 6,613,757 6,613,757 Shares used to compute diluted per common share amounts 29,331,813 29,253,991 (1) Assumes debt refinancing occurred effective January 1, 2006. Three Months Nine Months Ended Ended September 30, 2006 Cash flow from operations, GAAP basis $15,182 $8,108 Premium paid on extinguishment of debt (1) 473 11,866 Tax benefit (cost) of debt extinguishment 276 (7,026) Cash flow from operations, pro-forma $15,931 $12,948 (1) Assumes debt refinancing occurred effective January 1, 2006. Hanger Orthopedic Group, Inc. Three Months Ended Nine Months Ended Statistical Data: September 30, September 30, 2006 2005 2006 2005 Patient-care centers 619 617 619 617 Number of Practitioners 1,032 1,059 1,032 1,059 Number of states (including D.C.) 46 45 46 45 Payor mix: Private pay and other 58.7% 55.2% 58.6% 56.5% Medicare 30.6% 32.4% 30.7% 31.5% Medicaid 6.1% 8.3% 6.3% 7.8% VA 4.6% 4.1% 4.4% 4.2% Percentage of net sales from: Patient-care services 90.3% 91.9% 90.5% 92.3% Distribution 9.7% 8.1% 9.5% 7.7%
Hanger Orthopedic Group, Inc.
CONTACT: Ivan R. Sabel, George E. McHenry or Hai V. Tran, all of HangerOrthopedic Group, Inc., +1-301-986-0701
Web site: http://www.hanger.com//
