Market Overview

Hanger Reports Second Quarter 2020 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 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.

 

Table 1

Hanger, Inc.

Condensed Consolidated Statements of Operations

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

 

 

 

For the Three Months Ended June 30,

 

For the Six Months Ended June 30,

 

 

2020

 

2019

 

2020

 

2019

Net revenues

 

$

233,434

 

 

$

281,098

 

 

$

467,173

 

 

$

517,517

 

Material costs

 

69,972

 

 

91,399

 

 

147,213

 

 

169,776

 

Personnel costs

 

73,822

 

 

91,490

 

 

163,007

 

 

178,201

 

Other operating costs (a)

 

8,277

 

 

33,741

 

 

44,163

 

 

67,296

 

General and administrative expenses

 

31,874

 

 

29,358

 

 

60,247

 

 

57,640

 

Professional accounting and legal fees

 

1,749

 

 

3,247

 

 

5,145

 

 

5,947

 

Depreciation and amortization

 

8,879

 

 

8,760

 

 

17,710

 

 

17,533

 

Income from operations

 

38,861

 

 

23,103

 

 

29,688

 

 

21,124

 

Interest expense, net

 

8,636

 

 

8,481

 

 

16,906

 

 

17,019

 

Non-service defined benefit plan expense

 

158

 

 

173

 

 

316

 

 

346

 

Income before income taxes

 

30,067

 

 

14,449

 

 

12,466

 

 

3,759

 

(Benefit) provision for income taxes

 

(987

)

 

4,414

 

 

(2,840

)

 

675

 

Net income

 

$

31,054

 

 

$

10,035

 

 

$

15,306

 

 

$

3,084

 

 

 

 

 

 

 

 

 

 

Basic and Diluted Per Common Share Data:

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.82

 

 

$

0.27

 

 

$

0.41

 

 

$

0.08

 

Weighted average shares used to compute basic earnings per common share

 

37,958,408

 

 

37,299,766

 

 

37,749,930

 

 

37,151,694

 

Diluted earnings per share

 

$

0.81

 

 

$

0.26

 

 

$

0.40

 

 

$

0.08

 

Weighted average shares used to compute diluted earnings per common share

 

38,325,872

 

 

37,887,559

 

 

38,424,334

 

 

37,889,586

 

 

(a) For the three and six months ended June 30, 2020, Hanger recognized approximately $20.5 million of income within other operating costs related to grant proceeds received under the CARES Act.

 

Table 2

Hanger, Inc.

Condensed Consolidated Balance Sheets

(Unaudited - in thousands)

 

 

As of June 30,

 

As of December 31,

 

 

2020

 

2019

ASSETS

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

129,853

 

 

$

74,419

 

Accounts receivable, net

 

115,575

 

 

159,359

 

Inventories

 

65,152

 

 

68,204

 

Income taxes receivable

 

4,409

 

 

 

Other current assets

 

16,740

 

 

13,673

 

Total current assets

 

331,729

 

 

315,655

 

Non-current assets:

 

 

 

 

Property, plant, and equipment, net

 

90,195

 

 

84,057

 

Goodwill

 

271,646

 

 

232,244

 

Other intangible assets, net

 

20,841

 

 

17,952

 

Deferred income taxes

 

73,036

 

 

70,481

 

Operating lease right-of-use assets

 

127,725

 

 

110,559

 

Other assets

 

14,811

 

 

11,305

 

Total assets

 

$

929,983

 

 

$

842,253

 

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

Current liabilities:

 

 

 

 

Current portion of long-term debt

 

$

27,501

 

 

$

8,752

 

Accounts payable

 

51,449

 

 

48,477

 

Accrued expenses and other current liabilities

 

68,196

 

 

55,825

 

Accrued compensation related costs

 

45,653

 

 

61,010

 

Current portion of operating lease liabilities

 

33,839

 

 

34,342

 

Total current liabilities

 

226,638

 

 

208,406

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

Long-term debt, less current portion

 

516,507

 

 

490,121

 

Operating lease liabilities

 

108,489

 

 

88,418

 

Other liabilities

 

57,501

 

 

45,804

 

Total liabilities

 

909,135

 

 

832,749

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

Common stock

 

383

 

 

376

 

Additional paid-in capital

 

360,014

 

 

354,326

 

Accumulated other comprehensive loss

 

(21,970

)

 

(12,551

)

Accumulated deficit

 

(316,883

)

 

(331,951

)

Treasury stock, at cost

 

(696

)

 

(696

)

Total shareholders' equity

 

20,848

 

 

9,504

 

Total liabilities and shareholders' equity

 

$

929,983

 

 

$

842,253

 

 

Table 3

Hanger, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited - in thousands)

 

 

For the Six Months Ended June 30,

 

 

2020

 

2019

Cash flows provided by (used in) operating activities:

 

 

 

 

Net income

 

$

15,306

 

 

$

3,084

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

Depreciation and amortization

 

17,710

 

 

17,533

 

Provision for doubtful accounts

 

1,084

 

 

304

 

Share-based compensation expense

 

12,485

 

 

6,715

 

Deferred income taxes

 

(9

)

 

779

 

Amortization of debt discounts and issuance costs

 

936

 

 

797

 

Gain on sale and disposal of fixed assets

 

(531

)

 

(792

)

Changes in operating assets and liabilities:

 

 

 

 

Accounts receivable, net

 

44,917

 

 

(1,010

)

Inventories

 

5,072

 

 

(1,862

)

Other current assets and other assets

 

(4,882

)

 

(1,100

)

Income taxes

 

(5,278

)

 

(1,339

)

Accounts payable

 

305

 

 

(3,208

)

Accrued expenses and other current liabilities

 

2,393

 

 

(2,778

)

Accrued compensation related costs

 

(15,536

)

 

(17,901

)

Other liabilities

 

3,686

 

 

(1,871

)

Operating lease liabilities, net of amortization of right-of-use assets

 

2,403

 

 

(890

)

Net cash provided by (used in) operating activities

 

80,061

 

 

(3,539

)

Cash flows used in investing activities:

 

 

 

 

Acquisitions, net of cash acquired

 

(16,788

)

 

(27,916

)

Purchase of property, plant, and equipment

 

(15,742

)

 

(14,806

)

Purchase of therapeutic program equipment leased to third parties under operating leases

 

(3,065

)

 

(3,530

)

Proceeds from sale of property, plant, and equipment

 

1,134

 

 

1,476

 

Purchase of company-owned life insurance investment

 

(250

)

 

 

Net cash used in investing activities

 

(34,711

)

 

(44,776

)

Cash flows provided by (used in) financing activities:

 

 

 

 

Borrowings under revolving credit agreement

 

79,000

 

 

 

Repayment of borrowings under revolving credit agreement

 

(57,000

)

 

 

Repayment of term loan

 

(2,525

)

 

(2,525

)

Payment of employee taxes on share-based compensation

 

(6,828

)

 

(3,654

)

Payment on seller notes

 

(1,799

)

 

(2,162

)

Payments of financing lease obligations

 

(314

)

 

(229

)

Payments under vendor financing arrangements

 

(275

)

 

 

Payment of debt issuance costs

 

(214

)

 

 

Proceeds from the exercise of options

 

39

 

 

 

Net cash provided by (used in) financing activities

 

10,084

 

 

(8,570

)

Increase (decrease) in cash and cash equivalents

 

55,434

 

 

(56,885

)

Cash and cash equivalents at beginning of period

 

74,419

 

 

95,114

 

Cash and cash equivalents at end of period

 

$

129,853

 

 

$

38,229

 

 

Table 4

Hanger, Inc.

Segment Information: Revenue, EBITDA and Adjusted EBITDA

(Unaudited - in thousands)

 

EBITDA is defined as operating income before depreciation and amortization. Adjusted EBITDA is defined as operating income before certain charges, third-party professional fees in excess of normal amounts incurred in connection with our financial statement remediation, expenses associated with equity-based compensation, severance expenses, certain expenses incurred in connection with our acquisitions, proceeds received from grants under the Coronavirus Aid, Relief and Economy Security Act ("CARES Act") and certain other charges.

 

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.

 

 

For the Three Months Ended June 30,

 

For the Six Months Ended June 30,

 

 

2020

 

2019

 

2020

 

2019

 

 

 

 

 

 

 

 

 

Net Revenue (a)

 

 

 

 

 

 

 

 

Patient Care

 

$

195,859

 

 

$

231,168

 

 

$

386,042

 

 

$

421,769

 

Products & Services

 

37,575

 

 

49,930

 

 

81,131

 

 

95,748

 

Net revenue

 

$

233,434

 

 

$

281,098

 

 

$

467,173

 

 

$

517,517

 

 

 

 

 

 

 

 

 

 

EBITDA (b)

 

 

 

 

 

 

 

 

Patient Care

 

$

63,446

 

 

$

46,276

 

 

$

79,459

 

 

$

66,585

 

Products & Services

 

8,256

 

 

7,520

 

 

13,088

 

 

14,161

 

Corporate & Other

 

(23,962

)

 

(21,933

)

 

(45,149

)

 

(42,089

)

EBITDA (Non-GAAP)

 

$

47,740

 

 

$

31,863

 

 

$

47,398

 

 

$

38,657

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA (b)

 

 

 

 

 

 

 

 

Patient Care

 

$

44,193

 

 

$

47,377

 

 

$

61,519

 

 

$

68,769

 

Products & Services

 

8,590

 

 

7,766

 

 

13,627

 

 

14,651

 

Corporate & Other

 

(16,258

)

 

(17,758

)

 

(33,355

)

 

(34,167

)

Adjusted EBITDA (Non-GAAP)

 

$

36,525

 

 

$

37,385

 

 

$

41,791

 

 

$

49,253

 

 

 

 

 

 

 

 

 

 

(a) Excludes intersegment revenue.

 

 

 

 

 

 

(b) EBITDA and Adjusted EBITDA are "Non-GAAP" measures. Please refer to both Table 6 and Table 7 for a reconciliation of these measures to GAAP net income.

 

Table 5

Hanger, Inc.

Reconciliation of Net Income and Earnings Per Share to

Adjusted Net Income and Adjusted Earnings Per Share

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

 

Earnings Per Share (or "EPS") is defined as net income divided by our basic or diluted common shares during the applicable period. Adjusted EPS is defined as EPS adjusted for certain equity-based compensation charges, third-party professional fees in excess of normal amounts incurred in connection with our financial statement remediation, severance expenses, certain expenses incurred in connection with our acquisitions, proceeds received from grants under the CARES Act, 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.

 

 

For the Three Months Ended June 30,

 

For the Six Months Ended June 30,

 

 

2020

 

2019

 

2020

 

2019

 

 

 

 

 

 

 

 

 

Net income - as reported (GAAP)

 

$

31,054

 

 

$

10,035

 

 

$

15,306

 

 

$

3,084

 

 

 

 

 

 

 

 

 

 

Adjustments:

 

 

 

 

 

 

 

 

Modification of equity awards (a)

 

5,869

 

 

 

 

5,869

 

 

 

Amortization expense

 

1,783

 

 

1,126

 

 

3,274

 

 

2,356

 

Third-party professional fees

 

 

 

1,745

 

 

1,639

 

 

3,394

 

Acquisition-related expenses

 

39

 

 

328

 

 

372

 

 

498

 

Hanger supply chain implementation costs

 

295

 

 

 

 

430

 

 

 

Severance expenses

 

 

 

(1

)

 

 

 

(11

)

Proceeds from grants under the CARES Act

 

(20,533

)

 

 

 

(20,533

)

 

 

Adjustments prior to tax effect

 

$

(12,547

)

 

$

3,198

 

 

$

(8,949

)

 

$

6,237

 

 

 

 

 

 

 

 

 

 

Tax effect of specified adjustments (b)

 

(5,192

)

 

179

 

 

(3,684

)

 

(1,724

)

Adjustments after taxes

 

(17,739

)

 

3,377

 

 

(12,633

)

 

4,513

 

 

 

 

 

 

 

 

 

 

Adjusted net income (Non-GAAP)

 

$

13,315

 

 

$

13,412

 

 

$

2,673

 

 

$

7,597

 

 

 

 

 

 

 

 

 

 

Basic earnings per share - as reported (GAAP)

 

$

0.82

 

 

$

0.27

 

 

$

0.41

 

 

$

0.08

 

Effect of above listed specified adjustments

 

(0.47

)

 

0.09

 

 

(0.34

)

 

0.12

 

Adjusted basic earnings per share - as reported (Non-GAAP)

 

$

0.35

 

 

$

0.36

 

 

$

0.07

 

 

$

0.20

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share - as reported (GAAP)

 

$

0.81

 

 

$

0.26

 

 

$

0.40

 

 

$

0.08

 

Effect of above listed specified adjustments

 

(0.46

)

 

0.09

 

 

(0.33

)

 

0.12

 

Adjusted diluted earnings per share - as reported (Non-GAAP)

 

$

0.35

 

 

$

0.35

 

 

$

0.07

 

 

$

0.20

 

 

 

 

 

 

 

 

 

 

Shares used to compute basic earnings per share

 

37,958,408

 

 

37,299,766

 

 

37,749,930

 

 

37,151,694

 

Shares used to compute diluted earnings per share

 

38,325,872

 

 

37,887,559

 

 

38,424,334

 

 

37,889,586

 

 

(a) Modification of equity awards reflect a non-recurring charge in the second quarter of 2020 for incremental equity-based compensation expense under ASC 718, Stock Compensation, related to the modification of certain equity awards granted in 2017.

(b) "Tax effect of specified adjustments" reflects the difference between the Company's effective provision for taxes and the application of a combined federal and state statutory tax rate of 24% for the 2020 and 2019 periods to the Company's earnings from operations before taxes, after the incorporation of the identified adjustments above.

 

Table 6

Hanger, Inc.

Reconciliation of Net Income to EBITDA and Adjusted EBITDA

(Unaudited - in thousands)

 

EBITDA is defined as operating income before depreciation and amortization. Adjusted EBITDA is defined as operating income before certain charges, third-party professional fees in excess of normal amounts incurred in connection with our financial statement remediation, expenses associated with equity-based compensation, severance expenses, certain expenses incurred in connection with our acquisitions, proceeds received from grants under the CARES Act and certain other charges.

 

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.

 

 

For the Three Months Ended June 30,

 

For the Six Months Ended June 30,

 

 

2020

 

2019

 

2020

 

2019

 

 

 

 

 

 

 

 

 

Net income - as reported (GAAP)

 

$

31,054

 

 

$

10,035

 

 

$

15,306

 

 

$

3,084

 

 

 

 

 

 

 

 

 

 

Adjustments to calculate EBITDA:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

8,879

 

 

8,760

 

 

17,710

 

 

17,533

 

Interest expense, net

 

8,636

 

 

8,481

 

 

16,906

 

 

17,019

 

Non-service defined benefit plan expense

 

158

 

 

173

 

 

316

 

 

346

 

(Benefit) provision for income taxes

 

(987

)

 

4,414

 

 

(2,840

)

 

675

 

Adjustments - net (loss) income to EBITDA

 

16,686

 

 

21,828

 

 

32,092

 

 

35,573

 

EBITDA (Non-GAAP)

 

47,740

 

 

31,863

 

 

47,398

 

 

38,657

 

 

 

 

 

 

 

 

 

 

Further adjustments to calculate Adjusted EBITDA:

 

 

 

 

 

 

 

 

Third-party professional fees

 

 

 

1,745

 

 

1,639

 

 

3,394

 

Equity-based compensation (a)

 

8,984

 

 

3,450

 

 

12,485

 

 

6,715

 

Acquisition-related expenses

 

39

 

 

328

 

 

372

 

 

498

 

Hanger supply chain implementation costs

 

295

 

 

 

 

430

 

 

 

Severance expenses

 

 

 

(1

)

 

 

 

(11

)

Proceeds from grants under the CARES Act

 

(20,533

)

 

 

 

(20,533

)

 

 

Further adjustments - EBITDA to Adjusted EBITDA

 

(11,215

)

 

5,522

 

 

(5,607

)

 

10,596

 

Adjusted EBITDA (Non-GAAP)

 

$

36,525

 

 

$

37,385

 

 

$

41,791

 

 

$

49,253

 

 

(a) Equity- based compensation expense includes an incremental charge in the second quarter of 2020 under ASC 718, Stock Compensation of approximately $5.9 million related to the modification of certain equity awards granted in 2017.

 

Table 7

Hanger, Inc.

Segment Reconciliation of Income From Operations to EBITDA and Adjusted EBITDA

(Unaudited - in thousands)

 

EBITDA is defined as operating income before depreciation and amortization. Adjusted EBITDA is defined as operating income before certain charges, third-party professional fees in excess of normal amounts incurred in connection with our financial statement remediation, expenses associated with equity-based compensation, severance expenses, certain expenses incurred in connection with our acquisitions, proceeds received from grants under the CARES Act and certain other charges.

 

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.

 

 

For the Three Months

Ended June 30,

 

For the Six Months

Ended June 30,

 

 

2020

 

2019

 

2020

 

2019

Patient Care

 

 

 

 

 

 

 

 

Income from operations - as reported (GAAP)

 

$

58,619

 

 

$

41,774

 

 

$

70,156

 

 

$

57,531

 

Depreciation & amortization

 

4,827

 

 

4,502

 

 

9,303

 

 

9,054

 

EBITDA (Non-GAAP)

 

63,446

 

 

46,276

 

 

79,459

 

 

66,585

 

Further adjustments to calculate Adjusted EBITDA:

 

 

 

 

 

 

 

 

Equity-based compensation

 

1,078

 

 

1,101

 

 

2,256

 

 

2,195

 

Hanger supply chain implementation costs

 

202

 

 

 

 

337

 

 

 

Severance expenses

 

 

 

 

 

 

 

(11

)

Proceeds from grants under the CARES Act

 

(20,533

)

 

 

 

(20,533

)

 

 

Further adjustments - EBITDA to Adjusted EBITDA

 

(19,253

)

 

1,101

 

 

(17,940

)

 

2,184

 

Adjusted EBITDA (Non-GAAP)

 

44,193

 

 

47,377

 

 

61,519

 

 

68,769

 

 

 

 

 

 

 

 

 

 

Products & Services

 

 

 

 

 

 

 

 

Income from operations - as reported (GAAP)

 

5,758

 

 

4,924

 

 

7,838

 

 

9,022

 

Depreciation & amortization

 

2,498

 

 

2,596

 

 

5,250

 

 

5,139

 

EBITDA (Non-GAAP)

 

8,256

 

 

7,520

 

 

13,088

 

 

14,161

 

Further adjustments to calculate Adjusted EBITDA:

 

 

 

 

 

 

 

 

Equity-based compensation

 

241

 

 

246

 

 

446

 

 

490

 

Hanger supply chain implementation costs

 

93

 

 

 

 

93

 

 

 

Further adjustments - EBITDA to Adjusted EBITDA

 

334

 

 

246

 

 

539

 

 

490

 

Adjusted EBITDA (Non-GAAP)

 

8,590

 

 

7,766

 

 

13,627

 

 

14,651

 

 

 

 

 

 

 

 

 

 

Corporate & Other

 

 

 

 

 

 

 

 

Loss from operations - as reported (GAAP)

 

(25,516

)

 

(23,595

)

 

(48,306

)

 

(45,429

)

Depreciation & amortization

 

1,554

 

 

1,662

 

 

3,157

 

 

3,340

 

EBITDA (Non-GAAP)

 

(23,962

)

 

(21,933

)

 

(45,149

)

 

(42,089

)

Further adjustments to calculate Adjusted EBITDA:

 

 

 

 

 

 

 

 

Third-party professional fees

 

 

 

1,745

 

 

1,639

 

 

3,394

 

Equity-based compensation (a)

 

7,665

 

 

2,103

 

 

9,783

 

 

4,030

 

Acquisition related expenses

 

39

 

 

328

 

 

372

 

 

498

 

Severance expenses

 

 

 

(1

)

 

 

 

 

Further adjustments - EBITDA to Adjusted EBITDA

 

7,704

 

 

4,175

 

 

11,794

 

 

7,922

 

Adjusted EBITDA (Non-GAAP)

 

(16,258

)

 

(17,758

)

 

(33,355

)

 

(34,167

)

Total Adjusted EBITDA (Non-GAAP)

 

$

36,525

 

 

$

37,385

 

 

$

41,791

 

 

$

49,253

 

 

(a) Equity- based compensation expense includes an incremental charge in the second quarter of 2020 under ASC 718, Stock Compensation of approximately $5.9 million related to the modification of certain equity awards granted in 2017.

 

Table 8

Hanger, Inc.

Indebtedness

(Unaudited - in thousands)

 

 

As of June 30,

 

As of December 31,

 

 

2020

 

2019

Debt:

 

 

 

 

Term Loan B

 

$

493,638

 

 

$

496,163

 

Revolving credit facility

 

22,000

 

 

 

Seller notes

 

29,610

 

 

9,005

 

Deferred payment obligation

 

4,000

 

 

 

Finance lease liabilities and other

 

3,152

 

 

2,033

 

Total debt before unamortized discount and debt issuance costs

 

552,400

 

 

507,201

 

Unamortized discount and debt issuance costs, net

 

(8,392

)

 

(8,328

)

Total debt

 

$

544,008

 

 

$

498,873

 

 

 

 

 

 

Current portion of long-term debt:

 

 

 

 

Term Loan B

 

$

5,050

 

 

$

5,050

 

Seller notes

 

21,710

 

 

3,175

 

Finance lease liabilities and other

 

741

 

 

527

 

Total current portion of long-term debt

 

27,501

 

 

8,752

 

Long-term debt

 

$

516,507

 

 

$

490,121

 

 

 

 

 

 

Net indebtedness:

 

 

 

 

Total debt before unamortized discount and debt issuance costs

 

$

552,400

 

 

$

507,201

 

Cash and cash equivalents

 

(129,853

)

 

(74,419

)

Net indebtedness

 

$

422,547

 

 

$

432,782

 

 

Table 9

Hanger, Inc.

Key Operating Metrics

 

 

As of and For the

Three Months Ended June 30,

 

For the

Six Months Ended June 30,

 

 

2020

 

2019

 

2020

 

2019

 

 

 

 

 

 

 

 

 

Same clinic revenue:

 

 

 

 

 

 

 

 

(Decline) growth rate on net revenue

 

(18.7)%

 

3.0%

 

(11.0)%

 

0.8%

(Decline) growth rate day adjusted (a)

 

(18.7)%

 

3.0%

 

(11.7)%

 

1.6%

 

 

 

 

 

 

 

 

 

Clinical locations:

 

 

 

 

 

 

 

 

Patient care clinics

 

707

 

696

 

 

 

 

Satellite clinics

 

108

 

109

 

 

 

 

Total clinical locations

 

815

 

805

 

 

 

 

 

(a) Same Clinic Revenue per Day - Same Clinic Revenue per Day normalizes revenue for the number of days a clinic was open in each comparable period. These measures are both non-GAAP and unaudited.

 

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