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 ended
September 30, 2020.
Financial Highlights
- Net revenue was $256.6 million for the three months ended
September 30, 2020, compared to $279.6 million for the same period
in 2019, reflecting a decrease of 8.2 percent. Net same clinic
revenue on a day-adjusted basis declined by 10.3 percent, due
primarily to a decrease in patient volumes associated with the
COVID-19 pandemic.
- Net income was $6.8 million for the three months ended
September 30, 2020, compared to $5.7 million for the same period in
2019. Income from operations was $13.1 million for the quarter
compared to $17.4 million for the same period in 2019.
- Adjusted EBITDA was $27.9 million in the third quarter of 2020,
compared to $32.6 million for the same period in 2019, reflecting a
decline of $4.8 million.
- GAAP diluted earnings per share was $0.18 for the third quarter
of 2020, compared to $0.15 per diluted share for the same period in
2019. Adjusted diluted earnings per share was $0.20 for the three
months ended September 30, 2020, compared to $0.25 per share for
the same period in 2019.
- On September 30, 2020, the Company had $242.3 million in
liquidity, reflecting an increase of $39.6 million as compared with
June 30, 2020.
Vinit Asar, President and Chief Executive Officer of Hanger,
Inc., stated, "Our patient volumes demonstrated continued recovery
in the third quarter, and this, combined with the cost containment
measures we took at the start of the pandemic, contributed to a
favorable earnings and cash flow performance. Our employees have
demonstrated strength and resilience in the face of these difficult
times and their actions have positioned us well for 2021."
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,
2020
Patient Care Segment
For the three months ended September 30, 2020, Patient Care net
revenue was $212.7 million, a decrease of $18.3 million, or 7.9
percent, compared to the same period in 2019. For the three month
period, acquisitions of O&P clinics that were consummated in
2019 and 2020 contributed $4.4 million of revenue growth, net of
consolidations.
Net same clinic revenue declined by 10.3 percent during the
third quarter of 2020 compared to the same quarter in the prior
year period. This reflected an improvement from the 18.7 percent
decline reported during the second quarter of 2020. While patient
care volumes remain lower than the prior year due to the impact of
the COVID-19 pandemic, the Company experienced a gradual recovery
in patient volumes during the quarter. Excluding acquisitions, net
revenue from prosthetics declined 8.9 percent in the quarter and
net revenue from orthotics declined 11.8 percent. While the
percentage decline in prosthetics revenue as compared with the same
periods in 2019 remained relatively consistent in the second and
third quarters, revenue from orthotics services recovered
significantly in the third quarter and was the primary contributing
factor to the improvement in the Company's sequential quarterly
revenue performance. Prosthetics comprised 55.5 percent of Patient
Care segment net revenue during the third quarter of 2020 as
compared to 54.8 percent during the same period in 2019.
During the months of July, August and September 2020, patient
volumes decreased by approximately 18 percent, 17 percent and 13
percent, respectively, each as compared with their corresponding
prior period in 2019. The average decline in patient appointments
for the quarter was 16 percent, an improvement from 33 percent in
the second quarter of 2020. As of September 30, 2020, the Company
had temporarily closed 22 patient care clinics and another 84
clinics were open for reduced hours or by appointment only.
Income from operations in the Patient Care segment was $32.2
million during the third quarter of 2020, a decrease of $3.9
million compared to the $36.1 million reported in the prior
year.
Adjusted EBITDA for the segment was $39.2 million, which
reflected a $3.0 million or 7.0 percent decrease. Adjusted EBITDA
margin in the segment totaled 18.4 percent compared to 18.3 percent
during the third quarter of 2019.
Products & Services Segment
For the three months ended September 30, 2020, Products &
Services net revenue totaled $44.0 million, a decline of 9.7
percent compared with the same period in 2019. Revenue from the
distribution of O&P componentry declined by $3.9 million, or
10.8 percent, primarily from lower sales volumes 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 $0.8 million, or 6.6 percent.
Income from operations for the Products & Services segment
remained consistent with the third quarter of 2019 at $5.1 million.
Adjusted EBITDA for the Products & Services segment totaled
$8.2 million for the third quarter of 2020, a $0.1 million decrease
compared with the same period of 2019. Adjusted EBITDA margin in
the segment totaled 18.6 percent compared to 16.6 percent during
the third quarter of 2019. Products & Services segment margins
and earnings were positively affected by lower operating costs
associated with temporary labor cost reductions.
Corporate & Other
Expenses associated with corporate and other activities
increased by $0.4 million to $24.3 million for the quarter ended
September 30, 2020 compared to the same period in 2019. 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 increased by $1.9 million to
$19.5 million in the third quarter of 2020.
Net Income; Interest Expense
Interest expense totaled $8.0 million for the three month period
ended September 30, 2020, a decrease of $0.9 million from the prior
year period.
For the three month period ended September 30, 2020, net income
was $6.8 million compared with $5.7 million for the same period in
2019. GAAP diluted income per share was $0.18 compared to $0.15 per
share in 2019. Adjusted diluted income per share was $0.20 for the
three months ended September 30, 2020, compared to $0.25 per share
for the same period in 2019.
Financial Highlights for the Nine Months Ended September 30,
2020
- Net revenue was $723.8 million for the nine months ended
September 30, 2020, compared to $797.2 million for the same period
of 2019, reflecting a net revenue decline of 9.2 percent. For the
nine month period, acquisitions of O&P clinics that were
consummated in 2019 and 2020 contributed $13.4 million of revenue
growth, net of consolidations.
- Patient Care net revenue declined $54.0 million, or 8.3
percent, for the year-to-date period to $598.7 million, while same
clinic day-adjusted net revenue per day declined 11.2 percent. Net
revenue from prosthetics, excluding acquisitions, decreased 6.6
percent on a day-adjusted basis, while orthotics net revenue,
excluding acquisitions, declined by 16.3 percent, also on a
day-adjusted basis.
- Products & Services segment net revenue declined $19.4
million, or 13.4 percent, resulting from a decrease of $16.6
million, or 15.4 percent, in distribution services and a $2.8
million decrease, or 7.5 percent, in net revenue from therapeutic
solutions.
- GAAP net income was $22.1 million for the nine months ended
September 30, 2020, compared to $8.8 million for the same period in
2019. GAAP Patient Care segment results for the first nine months
of 2020 included a benefit of $20.6 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 of $69.7 million for the first nine months of
2020 was $12.2 million lower as compared to the $81.9 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 September 2020 associated with the COVID-19 pandemic,
partially offset by temporary cost reduction measures in personnel
costs and other expense.
- For the nine months ended September 30, 2020, GAAP diluted
earnings per share was $0.57 compared to $0.23 per share in 2019.
Adjusted diluted earnings per share was $0.27 for the first nine
months of 2020, compared to $0.45 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 September 30, 2020 were $45.2 million compared to $23.5
million for the same period in 2019. In addition to other factors,
the Company benefited from improvements in cash collections during
the third quarter of 2020 as its days sales outstanding decreased
by four days to 43 days as of September 30, 2020 from 47 days on
September 30, 2019.
On September 30, 2020, the Company had liquidity of $242.3
million, comprised of $147.5 million in cash and cash equivalents,
and $94.8 million in available borrowing capacity under its
revolving credit facility. This compares to total liquidity of
$202.7 million on June 30, 2020.
Outlook Regarding the Effects of the COVID-19 Pandemic on
Prospective Results
Beginning in April 2020, 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. Salaries for exempt employees
were initially reduced by an average of 32 percent in April 2020.
As volumes began to improve, 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
was reinstated at the end of the third quarter. The Company also
commenced the gradual reduction of employee furloughs in June 2020
and completed the majority of these temporary furloughs at the end
of the third quarter of 2020.
The restoration of these temporary salary reductions had the
effect of increasing the Company's operating costs during the third
quarter of 2020 as compared with the second quarter of 2020. The
final one-third restoration will result in a further increase in
personnel expenses for the fourth quarter of 2020 to levels that
will approximate pre-pandemic amounts.
Management believes the remaining length and intensity of the
pandemic is uncertain as is its future impact on patient volumes.
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, November 5, at 8:30 a.m. Eastern time to
discuss the Company’s third quarter 2020 financial results and
business outlook.
To participate, dial 844-750-4896 or 412-317-5292 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 https://investor.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 September 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
September 30,
For the Nine Months Ended
September 30,
2020
2019
2020
2019
Net revenues
$
256,637
$
279,638
$
723,810
$
797,155
Material costs
81,462
92,034
228,675
261,810
Personnel costs
89,727
94,594
252,734
272,795
Other operating costs (a)
29,935
32,771
74,098
100,067
General and administrative expenses
31,371
29,834
91,618
87,474
Professional accounting and legal fees
2,264
3,629
7,409
9,576
Depreciation and amortization
8,803
9,373
26,513
26,906
Income from operations
13,075
17,403
42,763
38,527
Interest expense, net
8,013
8,954
24,918
25,973
Non-service defined benefit plan
expense
158
173
474
519
Income before income taxes
4,904
8,276
17,371
12,035
(Benefit) provision for income taxes
(1,911
)
2,585
(4,750
)
3,260
Net income
$
6,815
$
5,691
$
22,121
$
8,775
Basic and Diluted Per Common Share
Data:
Basic earnings per share
$
0.18
$
0.15
$
0.58
$
0.24
Weighted average shares used to compute
basic earnings per common share
38,133,598
37,349,144
37,878,753
37,218,234
Diluted earnings per share
$
0.18
$
0.15
$
0.57
$
0.23
Weighted average shares used to compute
diluted earnings per common share
38,637,536
37,986,860
38,491,965
37,921,767
(a) For the nine months ended September
30, 2020, Hanger recognized approximately $20.6 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 September 30,
As of December 31,
2020
2019
ASSETS
Current assets:
Cash and cash equivalents
$
147,510
$
74,419
Accounts receivable, net
121,409
159,359
Inventories
74,108
68,204
Income taxes receivable
5,945
—
Other current assets
14,489
13,673
Total current assets
363,461
315,655
Non-current assets:
Property, plant, and equipment, net
86,637
84,057
Goodwill
271,701
232,244
Other intangible assets, net
19,106
17,952
Deferred income taxes
70,489
70,481
Operating lease right-of-use assets
125,577
110,559
Other assets
15,710
11,305
Total assets
$
952,681
$
842,253
TOTAL LIABILITIES AND SHAREHOLDERS’
EQUITY
Current liabilities:
Current portion of long-term debt
$
27,791
$
8,752
Accounts payable
63,630
48,477
Accrued expenses and other current
liabilities
72,434
55,825
Accrued compensation related costs
63,511
61,010
Current portion of operating lease
liabilities
32,932
34,342
Total current liabilities
260,298
208,406
Long-term liabilities:
Long-term debt, less current portion
493,600
490,121
Operating lease liabilities
106,405
88,418
Other liabilities
60,077
45,804
Total liabilities
920,380
832,749
Shareholders’ equity:
Common stock
383
376
Additional paid-in capital
363,082
354,326
Accumulated other comprehensive loss
(20,400
)
(12,551
)
Accumulated deficit
(310,068
)
(331,951
)
Treasury stock, at cost
(696
)
(696
)
Total shareholders’ equity
32,301
9,504
Total liabilities and shareholders’
equity
$
952,681
$
842,253
Table 3
Hanger, Inc.
Condensed Consolidated
Statements of Cash Flows
(Unaudited - in thousands)
For the Nine Months Ended
September 30,
2020
2019
Cash flows provided by operating
activities:
Net income
$
22,121
$
8,775
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
26,513
26,906
Provision for doubtful accounts
629
284
Share-based compensation expense
15,565
10,089
Deferred income taxes
2,067
(723
)
Amortization of debt discounts and
issuance costs
1,564
1,202
Gain on sale and disposal of fixed
assets
(729
)
(1,200
)
Changes in operating assets and
liabilities:
Accounts receivable, net
39,531
1,914
Inventories
(3,834
)
(6,310
)
Other current assets and other assets
(3,115
)
(1,769
)
Income taxes
(6,814
)
2,613
Accounts payable
12,912
(1,751
)
Accrued expenses and other current
liabilities
6,914
(2,144
)
Accrued compensation related costs
2,339
(15,583
)
Other liabilities
8,016
(1,736
)
Operating lease liabilities, net of
amortization of right-of-use assets
1,559
(622
)
Net cash provided by operating
activities
125,238
19,945
Cash flows used in investing
activities:
Acquisitions, net of cash acquired
(16,854
)
(31,585
)
Purchase of property, plant, and
equipment
(19,352
)
(20,262
)
Purchase of therapeutic program equipment
leased to third parties under operating leases
(3,194
)
(5,165
)
Proceeds from sale of property, plant, and
equipment
1,578
2,181
Purchase of company-owned life insurance
investment
(250
)
—
Net cash used in investing activities
(38,072
)
(54,831
)
Cash flows used in financing
activities:
Borrowings under revolving credit
agreement
79,000
—
Repayment of borrowings under revolving
credit agreement
(79,000
)
—
Repayment of term loan
(3,788
)
(3,788
)
Payment of employee taxes on share-based
compensation
(6,841
)
(3,710
)
Payment on seller notes
(2,200
)
(2,688
)
Payments of financing lease
obligations
(521
)
(344
)
Payments under vendor financing
arrangements
(550
)
—
Payment of debt issuance costs
(214
)
—
Proceeds from the exercise of options
39
249
Net cash used in financing activities
(14,075
)
(10,281
)
Increase (decrease) in cash and cash
equivalents
73,091
(45,167
)
Cash and cash equivalents at beginning of
period
74,419
95,114
Cash and cash equivalents at end of
period
$
147,510
$
49,947
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
September 30,
For the Nine Months Ended
September 30,
2020
2019
2020
2019
Net Revenue (a)
Patient Care
$
212,664
$
230,931
$
598,706
$
652,700
Products & Services
43,973
48,707
125,104
144,455
Net revenue
$
256,637
$
279,638
$
723,810
$
797,155
EBITDA (b)
Patient Care
$
37,024
$
41,073
$
116,483
$
107,658
Products & Services
7,754
7,834
20,842
21,995
Corporate & Other
(22,900
)
(22,131
)
(68,049
)
(64,220
)
EBITDA (Non-GAAP)
$
21,878
$
26,776
$
69,276
$
65,433
Adjusted EBITDA (b)
Patient Care
$
39,209
$
42,160
$
100,728
$
110,929
Products & Services
8,157
8,070
21,784
22,721
Corporate & Other
(19,505
)
(17,594
)
(52,860
)
(51,761
)
Adjusted EBITDA (Non-GAAP)
$
27,861
$
32,636
$
69,652
$
81,889
(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
September 30,
For the Nine Months Ended
September 30,
2020
2019
2020
2019
Net income - as reported (GAAP)
$
6,815
$
5,691
$
22,121
$
8,775
Adjustments:
Modification of equity awards (a)
—
—
5,869
—
Amortization expense
1,797
1,561
5,071
3,917
Third-party professional fees
—
2,136
1,639
5,530
Acquisition-related expenses
33
350
405
848
Hanger supply chain implementation
costs
376
—
806
—
Severance expenses
3,015
—
3,015
(11
)
Proceeds from grants under the CARES
Act
(43
)
—
(20,576
)
—
Adjustments prior to tax effect
$
5,178
$
4,047
$
(3,771
)
$
10,284
Tax effect of specified adjustments
(b)
(4,331
)
(373
)
(8,014
)
(2,097
)
Adjustments after taxes
847
3,674
(11,785
)
8,187
Adjusted net income (Non-GAAP)
$
7,662
$
9,365
$
10,336
$
16,962
Basic earnings per share - as reported
(GAAP)
$
0.18
$
0.15
$
0.58
$
0.24
Effect of above listed specified
adjustments
0.02
0.10
(0.31
)
0.22
Adjusted basic earnings per share - as
reported (Non-GAAP)
$
0.20
$
0.25
$
0.27
$
0.46
Diluted earnings per share - as reported
(GAAP)
$
0.18
$
0.15
$
0.57
$
0.23
Effect of above listed specified
adjustments
0.02
0.10
(0.30
)
0.22
Adjusted diluted earnings per share - as
reported (Non-GAAP)
$
0.20
$
0.25
$
0.27
$
0.45
Shares used to compute basic earnings per
share
38,133,598
37,349,144
37,878,753
37,218,234
Shares used to compute diluted earnings
per share
38,637,536
37,986,860
38,491,965
37,921,767
(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
September 30,
For the Nine Months Ended
September 30,
2020
2019
2020
2019
Net income - as reported (GAAP)
$
6,815
$
5,691
$
22,121
$
8,775
Adjustments to calculate EBITDA:
Depreciation and amortization
8,803
9,373
26,513
26,906
Interest expense, net
8,013
8,954
24,918
25,973
Non-service defined benefit plan
expense
158
173
474
519
(Benefit) provision for income taxes
(1,911
)
2,585
(4,750
)
3,260
Adjustments - net income to EBITDA
15,063
21,085
47,155
56,658
EBITDA (Non-GAAP)
21,878
26,776
69,276
65,433
Further adjustments to calculate Adjusted
EBITDA:
Third-party professional fees
—
2,136
1,639
5,530
Equity-based compensation (a)
2,602
3,374
15,087
10,089
Acquisition-related expenses
33
350
405
848
Hanger supply chain implementation
costs
376
—
806
—
Severance expenses
3,015
—
3,015
(11
)
Proceeds from grants under the CARES
Act
(43
)
—
(20,576
)
—
Further adjustments - EBITDA to Adjusted
EBITDA
5,983
5,860
376
16,456
Adjusted EBITDA (Non-GAAP)
$
27,861
$
32,636
$
69,652
$
81,889
(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
September 30,
For the Nine Months Ended
September 30,
2020
2019
2020
2019
Patient Care
Income from operations - as reported
(GAAP)
$
32,238
$
36,130
$
102,394
$
93,661
Depreciation & amortization
4,786
4,943
14,089
13,997
EBITDA (Non-GAAP)
37,024
41,073
116,483
107,658
Further adjustments to calculate Adjusted
EBITDA:
Equity-based compensation
925
1,087
3,181
3,282
Hanger supply chain implementation
costs
263
—
600
—
Severance expenses
1,040
—
1,040
(11
)
Proceeds from grants under the CARES
Act
(43
)
—
(20,576
)
—
Further adjustments - EBITDA to Adjusted
EBITDA
2,185
1,087
(15,755
)
3,271
Adjusted EBITDA (Non-GAAP)
39,209
42,160
100,728
110,929
Products &
Services
Income from operations - as reported
(GAAP)
5,121
5,111
12,959
14,133
Depreciation & amortization
2,633
2,723
7,883
7,862
EBITDA (Non-GAAP)
7,754
7,834
20,842
21,995
Further adjustments to calculate Adjusted
EBITDA:
Equity-based compensation
244
236
690
726
Hanger supply chain implementation
costs
113
—
206
—
Severance expenses
46
—
46
—
Further adjustments - EBITDA to Adjusted
EBITDA
403
236
942
726
Adjusted EBITDA (Non-GAAP)
8,157
8,070
21,784
22,721
Corporate &
Other
Loss from operations - as reported
(GAAP)
(24,284
)
(23,838
)
(72,590
)
(69,267
)
Depreciation & amortization
1,384
1,707
4,541
5,047
EBITDA (Non-GAAP)
(22,900
)
(22,131
)
(68,049
)
(64,220
)
Further adjustments to calculate Adjusted
EBITDA:
Third-party professional fees
—
2,136
1,639
5,530
Equity-based compensation (a)
1,433
2,051
11,216
6,081
Acquisition related expenses
33
350
405
848
Severance expenses
1,929
—
1,929
—
Further adjustments - EBITDA to Adjusted
EBITDA
3,395
4,537
15,189
12,459
Adjusted EBITDA (Non-GAAP)
(19,505
)
(17,594
)
(52,860
)
(51,761
)
Total Adjusted EBITDA (Non-GAAP)
$
27,861
$
32,636
$
69,652
$
81,889
(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 September 30,
As of December 31,
2020
2019
Debt:
Term Loan B
$
492,375
$
496,163
Revolving credit facility
—
—
Seller notes
29,208
9,005
Deferred payment obligation
4,000
—
Finance lease liabilities and other
3,606
2,033
Total debt before unamortized discount and
debt issuance costs
529,189
507,201
Unamortized discount and debt issuance
costs, net
(7,798
)
(8,328
)
Total debt
$
521,391
$
498,873
Current portion of long-term debt:
Term Loan B
$
5,050
$
5,050
Seller notes
21,893
3,175
Finance lease liabilities and other
848
527
Total current portion of long-term
debt
27,791
8,752
Long-term debt
$
493,600
$
490,121
Net indebtedness:
Total debt before unamortized discount and
debt issuance costs
$
529,189
$
507,201
Cash and cash equivalents
(147,510
)
(74,419
)
Net indebtedness
$
381,679
$
432,782
Table 9
Hanger, Inc.
Key Operating Metrics
As of and For the Three Months
Ended September 30,
For the Nine Months Ended
September 30,
2020
2019
2020
2019
Same clinic revenue:
(Decline) growth rate on net revenue
(10.3)%
3.7%
(10.7)%
1.8%
(Decline) growth rate day adjusted (a)
(10.3)%
2.1%
(11.2)%
1.8%
Clinical locations:
Patient care clinics
704
695
Satellite clinics
110
106
Total clinical locations
814
801
(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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201104005368/en/
Investor Relations Contacts: Thomas Kiraly, Executive Vice
President and Chief Financial Officer, Hanger, Inc. 512-777-3600
tkiraly@hanger.com
Seth Frank, Vice President, Treasury and Investor Relations,
Hanger, Inc. 512-777-3573 sfrank@hanger.com
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