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 fourth quarter and full-year ended December 31, 2018.
Financial Highlights for the Fourth Quarter of 2018
Vinit Asar, President and Chief Executive Officer of Hanger, Inc., stated, "The fourth quarter of 2018 capped off a successful year for Hanger. We delivered financial results consistent with our original guidance while investing in a comprehensive portfolio of initiatives that will enable Hanger to increase its long-term rate of growth. I am pleased with the progress to date in our Patient Care segment, as we grow the prosthetics business, refine our delivery strategy in certain orthotics categories, and improve our operational effectiveness. Within Products & Services, we saw strong performance within distribution, offset by expected declines in therapeutic solutions. In 2019, we anticipate the investments we have made will further differentiate Hanger's leadership in the O&P industry."
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 the Fourth Quarter of 2018
Patient Care Segment
For the three months ended December 31, 2018, Patient Care net revenue was $236.6 million, a decrease of $0.9 million, or 0.4 percent, compared to net revenue of $237.5 million reported during the same period in 2017. Net Patient Care growth was reduced by $1.1 million as a result of the impact of ASC 606.
Same clinic revenue growth was 0.3 percent on a day-adjusted basis for the three months ended December 31, 2018. This moderation in same clinic revenue growth was caused by two primary factors: comparison to a strong growth performance in the fourth quarter of 2017 when same clinic revenue per day growth totaled 2.1 percent; as well as a decline in certain lower-margin orthotic categories that the Company continues to de-emphasize.
Income from operations in the Patient Care segment was $42.2 million during the fourth quarter of 2018, which reflected a $2.0 million decrease, compared to $44.2 million reported in the prior year. Adjusted EBITDA for the segment was $48.5 million, which reflected a $2.2 million or 4.4 percent decrease compared to the prior year period. Comparative increases in material and personnel costs impacted income from operations and Adjusted EBITDA in the fourth quarter of 2018.
Products & Services Segment
For the three months ended December 31, 2018, Products & Services net revenue totaled $48.2 million, which was consistent with the $48.3 million reported in the same period of 2017. Within this segment, revenue from the distribution of O&P componentry to independent providers increased by $1.6 million, or 4.9 percent. This growth was offset by a $1.7 million decrease in revenue from therapeutic solutions as compared to the fourth quarter of 2017.
Income from operations for the Products & Services segment increased by $53.4 million to $5.4 million in the fourth quarter of 2018 compared to the same period in 2017, due primarily to impairment of intangible assets in the prior year. Adjusted EBITDA for the Products & Services segment was $8.4 million for the fourth quarter of 2018, which reflected a $1.1 million decrease compared to the same period of 2017. Earnings growth from increased O&P distribution revenue was offset by the decrease in earnings associated with the decline in therapeutic solutions revenue.
Corporate & Other
The loss from operations relating to corporate and other activities declined by $6.8 million to $24.8 million for the quarter ended December 31, 2018 compared to the same period in 2017. This decrease primarily related to a $3.5 million reduction in bonus expense and a $2.8 million reduction in professional accounting and legal fees as compared to the fourth quarter of the prior year. Excluding the effect of third party professional fees related to financial statement remediation, depreciation and amortization, and non-cash equity compensation expense, the net cost of Corporate and Other activities decreased year-over-year by $3.8 million, to $16.8 million.
Net Income; Interest Expense
For the three months ended December 31, 2018, net income was $4.5 million compared with a net loss of $84.4 million in the same period of 2017. The $88.9 million improvement in net income year-over-year was due primarily to the $54.7 million impairment of intangible assets incurred in the fourth quarter of 2017, as well as lower professional accounting and legal fees, depreciation and amortization expense, interest expense and taxes in the fourth quarter of 2018.
Financial Highlights for the Full Year 2018
On December 31, 2018, the Company had total liquidity of $189.2 million, comprised of $95.1 million in cash and cash equivalents, and $94.1 million in available borrowing capacity under its revolving credit facility, compared to liquidity of $155.1 million on September 30, 2018. The increase in liquidity of $34.1 million from September 30, 2018 resulted primarily from positive net cash flow from operations and secondarily due to favorable working capital timing.
Hanger currently anticipates 2019 net 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 anticipates that growth and margin expansion in its Patient Care segment will be partially offset by declines in its Products & Services segment due to decreases in therapeutic solutions revenue. The Company's revenue and Adjusted EBITDA outlook also includes approximately $28 million of incremental revenue acquired through three acquisitions completed in the fourth quarter of 2018 and first quarter of 2019. Due to integration and other related costs, these acquisitions are anticipated to provide only modest contributions to earnings growth in 2019.
Hanger expects 2019 to be consistent with prior years with regard to seasonality in its business, with sequentially lower revenue, earnings and cash flow in the first quarter of the year. In addition, 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, Friday, March 15, at 8:30 a.m. Eastern time to discuss the Company’s fourth quarter and full year 2018 financial results and 2019 outlook.
To participate, dial 877-407-6184 or 201-389-0877 outside the U.S. and Canada, and use conference code number 13686646. A live webcast and replay of the call as well as accompanying supplemental information will be available at the Investor Relations section of the Company’s web site: investor.hanger.com.
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 investor.hanger.com.
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 to the broader market. 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 branded and private label 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 our internal control over financial reporting adversely affecting our ability to report our 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.
|Consolidated Statements of Operations|
(dollars in thousands, except share and per share amounts)
For the Three Months Ended
For the Years Ended
|Other operating costs||31,271||32,097||123,902||129,831|
|General and administrative expenses||29,085||33,373||109,552||109,342|
|Professional accounting and legal fees||4,726||7,224||16,915||36,239|
|Depreciation and amortization||8,903||9,665||36,455||39,259|
|Impairment of intangible assets||183||54,735||183||54,735|
|Income (loss) from operations||22,771||(35,413||)||59,647||(18,950||)|
|Interest expense, net||9,046||14,491||37,566||57,688|
|Loss on extinguishment of debt||—||—||16,998||—|
|Non-service defined benefit plan expense||176||184||703||736|
|Income (loss) before income taxes||13,549||(50,088||)||4,380||(77,374||)|
|Provision for income taxes||9,086||34,325||5,238||27,297|
|Net income (loss)||$||4,463||$||(84,413||)||$||(858||)||$||(104,671||)|
|Basic and Diluted Per Common Share Data:|
|Basic earnings (loss) per share||$||0.12||$||(2.32||)||$||(0.02||)||$||(2.89||)|
|Shares used to compute basic and diluted per common share amounts||36,906,938||36,410,488||36,764,551||36,270,920|
|Diluted earnings (loss) per share||$||0.12||$||(2.32||)||$||(0.02||)||$||(2.89||)|
|Weighted average shares outstanding - diluted||37,721,662||36,410,488||36,764,551||36,270,920|
|Consolidated Balance Sheets|
(dollars in thousands)
|As of December 31,|
|Cash and cash equivalents||$||95,114||$||1,508|
|Accounts receivable, net||143,986||146,346|
|Income taxes receivable||379||13,079|
|Other current assets||18,731||20,888|
|Total current assets||325,900||250,959|
|Property, plant, and equipment, net||89,489||93,615|
|Other intangible assets, net||15,478||21,940|
|Deferred income taxes||65,635||68,126|
|TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT|
|Current portion of long-term debt||$||8,583||$||4,336|
|Accrued expenses and other current liabilities||51,783||66,308|
|Accrued compensation related costs||55,111||53,380|
|Total current liabilities||171,274||172,293|
|Long-term debt, less current portion||502,090||445,928|
|Common stock, $0.01 par value; 60,000,000 shares authorized; 37,063,995 shares issued and 36,921,174 shares outstanding in 2018, and 36,515,232 shares issued and 36,372,411 shares outstanding in 2017||371||365|
|Additional paid-in capital||343,955||333,738|
|Accumulated other comprehensive loss||(4,531||)||(1,686||)|