Hanger Reports Second Quarter 2020 Financial Results

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 second quarter ended June 30, 2020.

Financial Highlights

• Net revenue was $233.4 million for the three months ended June 30, 2020, compared to $281.1 million for the same period in 2019, reflecting a decrease of 17.0 percent. Net same clinic revenue on a day-adjusted basis declined by 18.7 percent, due primarily to a decrease in patient volumes associated with the COVID-19 pandemic. Net revenue from prosthetic services declined at a lower rate than net revenue from orthotic services.

• Net income was $31.1 million for the three months ended June 30, 2020, compared to $10.0 million for the same period in 2019. Income from operations was $38.9 million for the quarter compared to $23.1 million for the same period in 2019. Second quarter GAAP operating and net income benefited from $20.5 million related to the Company’s receipt of healthcare provider grants from the United States Department of Health and Human Services under the CARES Act.

• Adjusted EBITDA was $36.5 million in the second quarter of 2020, compared to $37.4 million for the same period in 2019, reflecting a decrease of $0.9 million. Adjusted EBITDA excludes the benefit of the CARES Act healthcare provider grants. Adjusted EBITDA benefited from decreases in operating costs associated with reduced salaries, employee furloughs and other cost reduction actions.

• GAAP diluted earnings per share was $0.81 for the second quarter of 2020, compared to $0.26 per diluted share for the same period in 2019. Adjusted diluted earnings per share was $0.35 for the three months ended June 30, 2020, compared to $0.35 per share for the same period in 2019.

• On June 30, 2020, the Company had $202.7 million in liquidity, which reflected an increase of $70.9 million as compared with March 31, 2020.

Vinit Asar, President and Chief Executive Officer of Hanger, Inc., stated, “During the second quarter, our primary focus was on providing uninterrupted patient care and on the safety of patients and employees. Through the management actions we took, we were also able to build the liquidity necessary to support the Company throughout a prolonged COVID-19 pandemic.” Asar continued, “As a result of the dedication and efforts of our 4,900 associates, we enter the second half of 2020 in a position of strength and with a collective confidence that we are prepared to return to a growth footing once the pandemic subsides.”

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 June 30, 2020

Patient Care Segment

For the three months ended June 30, 2020, Patient Care net revenue was $195.9 million, a decrease of $35.3 million, or 15.3 percent, compared to the same period in 2019. Total revenue for the segment includes $6.2 million of revenue from O&P clinics acquired in 2019 and 2020, net of consolidations.

Net same clinic revenue declined by 18.7 percent during the quarter compared to the prior year period. This decline was due primarily to lower patient volumes during the second quarter resulting from the impact of the COVID-19 pandemic. Excluding acquisitions, net revenue from prosthetics declined 8.9 percent in the quarter and net revenue from orthotics declined 30.4 percent. Prosthetics comprised 61.3 percent of Patient Care segment net revenue during the second quarter of 2020 as compared to 55.0 percent during the same period in 2019.

During the second quarter, the Patient Care segment experienced a gradual reduction in the adverse effects of the pandemic on patient appointment volumes as they decreased by approximately 40 percent in April, 34 percent in May and 24 percent in June, each as compared with their respective prior period in 2019. The average decline in patient appointments for the quarter was 33 percent. As of June 30, 2020, the Company had temporarily closed 24 patient care clinics and another 137 clinics were open for reduced hours or by appointment only.

Income from operations in the Patient Care segment was $58.6 million during the second quarter of 2020, an increase of $16.8 million compared to the $41.8 million reported in the prior year. GAAP Patient Care segment results included a benefit of $20.5 million to other operating costs related to the Company’s receipt of CARES Act healthcare provider grants. These grants were received under the Public Health and Social Services Emergency fund, also referred to as The Provider Relief Fund, established by the CARES Act.

Adjusted EBITDA for the segment was $44.2 million, which reflected a $3.2 million or 6.7 percent decrease. Adjusted EBITDA excludes the benefit of the CARES Act healthcare provider grants. Adjusted EBITDA margin in the segment totaled 22.6 percent compared to 20.5 percent during the second quarter of 2019. The growth in Adjusted EBITDA margin resulted primarily from temporary labor and other cost reduction actions implemented in the quarter. These included a decrease in exempt employee salaries, employee furloughs and reductions in non-exempt employee hours. The Patient Care segment also benefited from lower materials costs during the second quarter, primarily associated with reduced business volumes and the beneficial effect of freight savings initiatives.

Products & Services Segment

For the three months ended June 30, 2020, Products & Services net revenue totaled $37.6 million, a decline of 24.7 percent compared with the same period in 2019. Revenue from the distribution of O&P componentry declined by $11.1 million, or 29.6 percent, primarily from lower sales volumes of O&P componentry due to the COVID-19 pandemic, and to a lesser extent, the Company’s decision to exit the distribution of certain low margin off-the-shelf orthotics into third-party channels. Therapeutic Solutions revenue declined $1.2 million, or 9.9 percent.

Income from operations for the Products & Services segment increased by $0.8 million in the second quarter of 2020 compared to the same period in 2019. Adjusted EBITDA for the Products & Services segment totaled $8.6 million for the second quarter of 2020, a $0.8 million increase compared with the same period of 2019. Adjusted EBITDA margin in the segment totaled 22.9 percent compared to 15.6 percent during the second quarter of 2019. Products & Services segment margins and earnings were positively affected by lower operating costs associated with temporary labor cost reductions and decreases in materials costs associated with lower business volumes.

Corporate & Other

Expenses associated with corporate and other activities increased by $1.9 million to $25.5 million for the quarter ended June 30, 2020 compared to the same period in 2019. The increase in Corporate & Other expenses arose from a non-cash increase in equity-based compensation offset by temporary labor cost reductions and a decrease in systems implementation costs associated with management’s decision to pause the supply chain and financial systems project. The increase in equity-based compensation expense related to a non-cash charge of $5.9 million associated with a modification to the 2017 Special Equity Plan awards, which vested in the second quarter of 2020.

Excluding the effect of depreciation and amortization, non-cash equity-based compensation expense and certain non-recurring expenses, the net cost of corporate and other activities decreased by $1.5 million to $16.3 million in the second quarter of 2020.

Net Income; Interest Expense

Interest expense totaled $8.6 million for the three month period ended June 30, 2020, an increase of $0.2 million from the prior year period.

For the three month period ended June 30, 2020, net income was $31.1 million compared with $10.0 million for the same period in 2019. GAAP diluted income per share was $0.81 compared to $0.26 per share in 2019. Adjusted diluted income per share was $0.35 for the three months ended June 30, 2020, compared to $0.35 per share for the same period in 2019.

Financial Highlights for the Six Months Ended June 30, 2020

• Net revenue was $467.2 million for the six months ended June 30, 2020, compared to $517.5 million for the same period of 2019, reflecting a net revenue decline of 9.7 percent. For the six month period, acquisitions that occurred in 2019 and 2020 contributed $9.0 million of revenue, net of consolidations.

• Patient Care net revenue declined $35.7 million, or 8.5 percent, for the year-to-date period to $386.0 million, while same clinic day-adjusted net revenue per day declined 11.7 percent. Revenue from prosthetics, excluding acquisitions, decreased 5.3 percent on a net day-adjusted basis, while orthotics revenue, excluding acquisitions, declined by 18.6 percent, also on a net day-adjusted basis.

• Products & Services segment net revenue declined $14.6 million, or 15.3 percent, driven by a decrease of $12.6 million in distribution services and a $2.0 million decrease, or 7.9 percent decline in revenue from therapeutic solutions.

• GAAP net income was $15.3 million for the six months ended June 30, 2020, compared to a $3.1 million for the same period in 2019. The first six months of 2020 included a benefit of $20.5 million to other operating costs related to the receipt of CARES grants.

• Adjusted EBITDA of $41.8 million for the first six months of 2020 was $7.5 million lower as compared to the $49.3 million reported in the prior year period. Adjusted EBITDA excludes the benefit of the CARES Act healthcare provider grants. The decline in Adjusted EBITDA is a result of lower patient volumes during March through June 2020 associated with the COVID-19 pandemic, partially offset by temporary reductions in personnel costs and other expense.

• For the six months ended June 30, 2020, GAAP diluted earnings per share was $0.40, compared to $0.08 per share in 2019. Adjusted diluted earnings per share was $0.07 for the first six months of 2020, compared to $0.20 per share for the same period in 2019.

Net Cash Provided by Operating Activities and Liquidity

Cash flows provided by operating activities for the three months ending June 30, 2020 were $102.0 million compared to $29.3 million for the same period in 2019. The Company benefited from improvements in cash collections during the second quarter of 2020 as its days sales outstanding decreased from 47 days as of June 30, 2019 to 45 days on June 30, 2020.

On June 30, 2020, the Company had liquidity of $202.7 million, comprised of $129.9 million in cash and cash equivalents, and $72.8 million in available borrowing capacity under its revolving credit facility. This compares to total liquidity of $131.8 million on March 31, 2020.

Outlook Regarding the Effects of the COVID-19 Pandemic on Prospective Results

At the onset of the second quarter, in response to the COVID-19 pandemic, the Company made certain changes to its operations, implemented a broad number of cost reduction measures, and temporarily delayed certain capital investment projects. While the Company cannot forecast with certainty the ultimate extent of the impacts from or the duration of the COVID-19 pandemic, it does currently believe that these measures, when accompanied if necessary by additional funding sources, if available, and further cost reduction actions, will enable it to maintain sufficient liquidity in the event the pandemic has a prolonged adverse impact on patient volumes similar to that experienced in the second quarter.

The Company is currently managing its staffing levels to support continuing reduced levels of patient volumes. However, given the successful performance of the Company’s second quarter plan to accumulate capital sufficient to endure the business effects of the pandemic, it has chosen to implement a gradual reinstatement of wage reductions. Salaries for exempt employees were initially reduced by an average of 32 percent in April 2020. One-third of this reduction was reinstated in June 2020, a further one-third was reinstated during July 2020, and the final outstanding 11 percent reduction in wages is currently expected to be reinstated no later than the end of the third quarter of 2020. The Company also commenced the gradual reduction of employee furloughs in June 2020. These actions will increase the Company’s operating costs during future quarters, and, given the continuing adverse effects that the COVID-19 pandemic is anticipated to have on patient volumes, it is likely that quarterly earnings for at least the remainder of 2020 will be depressed as compared with second quarter 2020 levels. Accordingly, the Company has currently planned for a consumption of a portion of its cash balances to fund its operations during the remaining two quarters of the year.

Given the continuing uncertain and material effects the COVID-19 pandemic will likely have on prospective results, the Company is not providing guidance as to its anticipated financial results for the current year.

Conference and Webcast Details

The Company’s management team will host a conference call tomorrow, Thursday, August 6, at 8:30 a.m. Eastern time to discuss the Company’s second quarter 2020 financial results and business outlook.

To participate, dial 866-270-1533 or 412-317-0797 outside the U.S. and Canada, and ask to be joined into the Hanger, Inc. call. A live webcast, replay of the call and earnings release, will be available on the Company’s Investor Relations website: www.investor.hanger.com/financial-reporting.

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. - Hanger, Inc. (NYSE: HNGR) delivers orthotic and prosthetic (O&P) patient care, and distributes O&P products and rehabilitative solutions to the broader market. Hanger’s Patient Care segment is the largest owner and operator of O&P patient care clinics with approximately 800 locations nationwide. Through its Products & Services segment, Hanger distributes branded and private label O&P devices, products and components, and provides rehabilitative solutions. With nearly 160 years of clinical excellence and innovation, Hanger’s vision is to lead the orthotic and prosthetic markets by providing superior patient care, outcomes, services and value. For more information on Hanger, visit www.hanger.com.

This earnings release contains statements that are forward-looking statements within the meaning of the federal securities laws. Forward-looking statements include information concerning our liquidity and our possible or assumed future results of operations, including descriptions of our business strategies. These statements often include words such as “believe,” “expect,” “project,” “potential,” “anticipate,” “intend,” “plan,” “estimate,” “seek,” “will,” “may,” “would,” “should,” “could,” “forecasts” or similar words. These statements are based on certain assumptions that we have made in light of our experience in the industry as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate in these circumstances. We believe these assumptions are reasonable, but you should understand that these statements are not guarantees of performance or results, and our actual results could differ materially from those expressed in the forward-looking statements due to a variety of important factors, both positive and negative, that may be revised or supplemented in subsequent releases or reports. These statements involve risks, estimates, assumptions, and uncertainties that could cause actual results to differ materially from those expressed in these statements and elsewhere in this release. These uncertainties include, but are not limited to, the financial and business impacts of COVID-19 on our operations and the operations of our customers, suppliers, governmental and private payers and others in the healthcare industry and beyond; federal laws governing the health care industry; governmental policies affecting O&P operations, including with respect to reimbursement; failure to successfully implement a new enterprise resource planning system or other disruptions to information technology systems; the inability to successfully execute our acquisition strategy, including integration of recently acquired O&P clinics into our existing business; changes in the demand for our O&P products and services, including additional competition in the O&P services market; disruptions to our supply chain; our ability to enter into and derive benefits from managed-care contracts; our ability to successfully attract and retain qualified O&P clinicians; 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, 2019 and Quarterly Report on Form 10-Q for the three months ended June 30, 2020, each 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.

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