Market Overview

Hanger Reports Third Quarter 2019 Financial Results

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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 third quarter and nine months ended September 30, 2019.

Financial Highlights for the Third Quarter of 2019

  • Net revenue was $279.6 million for the three months ended September 30, 2019, compared to $262.9 million for the same period in 2018, reflecting an increase of 6.3 percent. Within the Patient Care segment, net same clinic revenue on a day-adjusted basis grew by 2.1 percent.
  • GAAP net income totaled $5.7 million for the three months ended September 30, 2019, compared to $4.4 million for the same period in 2018. GAAP income from operations was $17.4 million for the quarter compared to $15.9 million for the same period in 2018.
  • Adjusted EBITDA was $32.6 million in the third quarter, compared to $31.1 million for the same period in 2018, reflecting an increase of $1.5 million or 4.8 percent. Growth in Adjusted EBITDA was driven by increased Patient Care segment revenue and contribution margin, which was partially offset by a decrease in contribution from the Products & Services segment, as well as an increase in Corporate & Other costs.
  • GAAP diluted earnings per share was $0.15 for the third quarter of 2019, compared to $0.12 for the same period in 2018. Adjusted diluted earnings per share was $0.25 for the three months ended September 30, 2019, compared to $0.22 for the same period in 2018, which reflected an increase of 13.6 percent.
  • The Company reaffirms its 2019 financial outlook (see "2019 Outlook" within this release).

Vinit Asar, President and Chief Executive Officer of Hanger, Inc., stated, "We are pleased with the solid revenue growth our Patient Care segment achieved in the third quarter. Our results reflected same clinic revenue growth of 2.1 percent which was driven by a 4.0 percent rate of growth in prosthetics. When coupled with the effect of acquisitions, this segment achieved a 7.9 percent overall rate of growth. With nine months of the year completed, we are continuing to execute within the mid-range of our financial outlook for 2019."

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 September 30, 2019

Patient Care Segment

For the three months ended September 30, 2019, Patient Care net revenue was $230.9 million, an increase of $16.9 million or 7.9 percent, compared to the same period in 2018. Total revenue growth for the segment includes $8.5 million of revenue from O&P clinics acquired in late 2018 and early 2019, net of consolidations and closures.

Net same clinic revenue on a day-adjusted basis grew by 2.1 percent during the quarter. Revenue from prosthetics, excluding acquisitions, increased 4.0 percent in the quarter on a day-adjusted basis. Net revenue from orthotics, excluding acquisitions, was consistent with the same period in 2018 on a day-adjusted basis as growth in orthotics was offset by a modest decline in shoes and inserts. Prosthetics comprised 55.0 percent of Patient Care segment net revenue during the third quarter of 2019 as compared with 54.0 percent during the same period in 2018.

Income from operations in the Patient Care segment was $36.1 million during the third quarter of 2019, reflecting growth of $3.6 million compared to the $32.5 million reported in the prior year. Adjusted EBITDA for the segment was $42.2 million, which reflected a $4.0 million or 10.4 percent increase compared to the prior year period. Adjusted EBITDA margin in the segment totaled 18.3 percent compared to 17.8 percent during the third quarter of 2018. Margin growth was driven by flow-through from the year-over-year increase in revenue, partially offset by higher materials costs and an increase in other expenses.

Products & Services Segment

For the three months ended September 30, 2019, Products & Services net revenue totaled $48.7 million, which was generally consistent with the same period in 2018. Revenue from the distribution of O&P componentry increased by $1.9 million, or 5.7 percent, and this growth was offset by a $2.1 million decrease in revenue from therapeutic solutions.

Income from operations for the Products & Services segment decreased by $1.7 million to $5.1 million in the third quarter of 2019 compared to the same period in 2018. Adjusted EBITDA for the Products & Services segment was $8.1 million for the third quarter of 2019, which reflected a $1.6 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 increased by $0.4 million to $23.8 million for the quarter ended September 30, 2019 compared to the same period in 2018. The increase in Corporate & Other expenses relates to costs associated with the initial planning and design for the implementation of new financial and supply chain systems.

Excluding the effect of depreciation and amortization, excess third party professional fees, non-cash equity compensation expense and certain acquisition-related expenses, the net cost of corporate and other activities increased by $0.9 million to $17.6 million in the third quarter of 2019.

Net Income; Interest Expense

Interest expense totaled $9.0 million in each of the three month periods ended September 30, 2019 and 2018.

For the three months ended September 30, 2019, net income was $5.7 million compared with $4.4 million for the same period in 2018. For the three months ended September 30, 2019, GAAP diluted earnings per share was $0.15, compared to $0.12 per share in 2018. Adjusted diluted earnings per share was $0.25 for the three months ended September 30, 2019, compared to $0.22 per share for the same period in 2018.

Financial Highlights for the Nine Months Ended September 30, 2019

Net revenue was $797.2 million for the nine months ended September 30, 2019, compared to $763.9 million for the same period of 2018, reflecting net revenue growth of 4.4 percent. For the nine month period, acquisitions that occurred in late 2018 and early 2019 contributed $19.1 million to net revenue, net of consolidations and closures.

Patient Care net revenue grew $32.0 million, or 5.1 percent, for the year-to-date period to $652.7 million. Net same clinic revenue on a day-adjusted basis for the first nine months of 2019 totaled 1.8 percent. Revenue from prosthetics increased by 2.7 percent on a day-adjusted basis, while orthotics revenue increased by 0.7 percent also on a day-adjusted basis.

Products & Services segment net revenue grew $1.3 million, or 0.9 percent, driven by growth of $6.8 million in distribution services, offset by a $5.5 million decrease in revenue from therapeutic solutions.

GAAP net income was $8.8 million for the nine months ended September 30, 2019, compared to a $5.3 million net loss for the same period in 2018. Results for the year-to-date period ending September 30, 2018 included a $17.0 million pre-tax loss on the extinguishment of debt related to the Company's March 2018 refinancing, which was partially offset by a $3.7 million one-time gain related to favorable settlements.

Adjusted EBITDA of $81.9 million for the first nine months of 2019 compares with the $81.0 million reported in the prior year period.

For the nine months ended September 30, 2019, GAAP diluted earnings per share was $0.23, compared to a loss of $0.14 per share in 2018. Adjusted diluted earnings per share was $0.45 for the first nine months of 2019, compared to $0.38 per share for the same period in 2018.

Net Cash Provided by Operating Activities; Liquidity

Cash flows provided by operating activities for the three months ending September 30, 2019 were $23.5 million compared to $20.3 million for the same period in 2018.

On September 30, 2019, the Company had liquidity of $144.8 million, comprised of $49.9 million in cash and cash equivalents, and $94.8 million in available borrowing capacity under its revolving credit facility, compared to liquidity of $133.0 million on June 30, 2019.

2019 Outlook

Based on year-to-date results, the Company reaffirms its full-year 2019 net revenue and Adjusted EBITDA outlook of: Revenue in a range between $1.075 billion and $1.105 billion, and Adjusted EBITDA in a range between $121 million and $126 million. The Company plans to provide its financial outlook for 2020 when it reports its fourth quarter and full year 2019 results in March 2020.

This 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

The Company's management team will host a conference call tomorrow, Friday, November 8, at 8:30 a.m. Eastern time to discuss the Company's third quarter 2019 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: 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. – 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 its 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.

Table 1

Hanger, Inc.

Condensed Consolidated Statements of Operations

(Unaudited - in thousands, except share and per share amounts)

 

 

 

For the Three Months Ended

September 30,

 

For the Nine Months Ended

September 30,

 

 

2019

 

2018

 

2019

 

2018

Net revenues

 

$

279,638

 

 

$

262,946

 

 

$

797,155

 

 

$

763,907

 

Material costs

 

92,034

 

 

84,805

 

 

261,810

 

 

247,677

 

Personnel costs

 

94,594

 

 

90,853

 

 

272,795

 

 

266,515

 

Other operating costs

 

32,771

 

 

30,999

 

 

100,067

 

 

92,631

 

General and administrative expenses

 

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