UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act

 

Date of Report (Date of Earliest Event Reported): May 8, 2019

 

Hanger, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

1-10670

 

84-0904275

(State or other jurisdiction

 

(Commission File Number)

 

(IRS Employer

of incorporation)

 

 

 

Identification No.)

 

10910 Domain Drive, Suite 300

Austin, Texas 78758

(Address of principal executive offices (zip code))

 

(512) 777-3800

(Registrant’s telephone number, including area code)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):

 

o                      Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o                      Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a - 12)

 

o                      Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o                      Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13d-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company    o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    o

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.01 per share

 

HNGR

 

New York Stock Exchange

 

 

 


 

Item 2.02. Results of Operations and Financial Condition.

 

On May 8, 2019, Hanger, Inc. (the “Company”) issued a press release regarding the filing of the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2019.  A copy of the press release is furnished as Exhibit 99.1 to this report.

 

The information contained in Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1 attached hereto, is intended to be furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing. In addition, this report and the press release contain statements intended as “forward-looking statements” that are subject to the cautionary statements about forward-looking statements set forth in the press release.

 

Item 9.01                                            Financial Statements and Exhibits.

 

(d) Exhibit:

 

EXHIBIT INDEX

 

Exhibit No.

 

Description

 

 

 

99.1

 

Press Release issued by Hanger, Inc. on May 8, 2019.

 

2


 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

HANGER, INC.

 

 

 

 

By:

/s/ Thomas E. Hartman

 

 

Thomas E. Hartman

 

 

Senior Vice President and General Counsel

 

 

 

 

Dated: May 8, 2019

 

3


Exhibit 99.1

 

 

Hanger Announces Financial Results for the First Quarter of 2019

 

AUSTIN, Texas, May 8, 2019 - 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 first quarter ended March 31, 2019.

 

Financial Highlights for the First Quarter of 2019

 

·                   Net revenue was $236.4 million for the three months ended March 31, 2019, compared to $234.0 million for the same period in 2018, reflecting a net revenue increase of 1.0 percent year-over-year.

 

·                   GAAP net loss totaled $7.0 million for the three months ended March 31, 2019, compared to a net loss of $22.6 million for the same period in 2018. The net loss in the first quarter of 2018 included the impact of a $17.0 million pre-tax loss on the extinguishment of debt as well as higher interest expense compared to the first quarter of 2019.

 

·                   GAAP loss from operations totaled $2.0 million for the three months ended March 31, 2019, compared to income from operations of $0.6 million for the same period in 2018.

 

·                   Adjusted EBITDA was $11.9 million in the first quarter of 2019, compared to $16.2 million for the same period in 2018, reflecting a decrease of $4.3 million. The decline in Adjusted EBITDA was driven primarily by expected increases of $1.8 million in benefits expense and $1.0 million in rent expense, as well as expected lower margins within the Products and Services segment.

 

·                   GAAP loss per share was ($0.19) for the first quarter of 2019, compared to a loss per share of ($0.62) for the same period in 2018. The reduction in GAAP loss per share related primarily to the prior year refinancing costs, a reduction in interest expense and lower third party professional fees.

 

·                   Adjusted diluted loss per share was ($0.16) for the three months ended March 31, 2019, compared to loss per share of ($0.13) for the same period in 2018.

 

·                   The Company reaffirmed its 2019 financial outlook (see “2019 Outlook” within this release).

 

Vinit Asar, President and Chief Executive Officer of Hanger, Inc., stated, “While revenue growth in the quarter was below our expectations, we believe this relates primarily to the timing of our prosthetics deliveries.  As a result, we are reaffirming both our revenue and earnings guidance for 2019.  We remain positive in our view of the demand for our O&P services, strength in our referrals patterns, and the overall industry fundamentals.”

 

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 March 31, 2019

 

Patient Care Segment

 

For the three months ended March 31, 2019, Patient Care net revenue was $190.6 million, an increase of $2.1 million or 1.1 percent, compared to the same period in 2018. Growth on a reported basis was attributed to $4.8 million of revenue during the quarter from O&P clinics acquired in late 2018 and early 2019.

 

After adjusting for one less revenue day in the first quarter, same clinic revenue for the three months ended March 31, 2019 was consistent with the prior year period. Revenue from prosthetic services decreased 0.7 percent on a day-adjusted basis compared to the prior year and revenue from orthotics increased by 0.9 percent on a day-adjusted basis.

 

Income from operations in the Patient Care segment was $15.8 million during the first quarter of 2019, which reflected a $1.3 million decline, compared to $17.1 million reported in the prior year. Adjusted EBITDA for the segment was $21.4 million, which reflected a $1.6 million or 7.0 percent decline compared to the $23.0 million reported in the prior year period. Results reflected higher health benefit and rent expenses as compared with the prior year period, with the Patient Care segment bearing $1.5 million of the Company’s $1.8 million increase in benefits costs and $0.9 million of the $1.0 million total increase in rent expense. Benefits costs are inherently volatile from one period to the next as they are dependent on the Company’s underlying claim experience, which was favorable in the first quarter of 2018. Of the total rent increase, $0.3 million related to the adoption of the new lease accounting standard, Accounting Standards Codification (ASC) 842, and the remainder of the increase related to rent increases and completed acquisitions.

 

Products & Services Segment

 

For the three months ended March 31, 2019, Products & Services net revenue totaled $45.8 million, which reflected a $0.3 million, or 0.7 percent increase compared to the same period in 2018. Revenue growth was driven by a $1.8 million, or 5.9 percent increase from the distribution of O&P componentry to independent providers, which was partially offset by a $1.5 million decrease in revenue from therapeutic solutions.

 

Income from operations for the Products & Services segment decreased by $1.8 million to $4.1 million in the first quarter of 2019 compared to the same period in 2018. Adjusted EBITDA for the Products & Services segment was $6.9 million for the first quarter of 2019, which reflected a $1.8 million decrease compared with the same period of 2018. The decline in therapeutic solutions revenue as well as lower margins within O&P distribution impacted segment earnings in the quarter.

 

2


 

Corporate & Other

 

The loss from operations relating to corporate and other activities decreased by $0.5 million to $21.8 million for the quarter ended March 31, 2019 compared to the same period in 2018. This decrease primarily related to a $2.1 million reduction in professional accounting and legal fees year-over-year. Excluding the effect of excess third party professional fees, depreciation and amortization, certain acquisition related transaction costs and non-cash equity compensation expense, the net cost of corporate and other activities increased by $1.0 million to $16.4 million in the first quarter of 2019. Increases in costs for Corporate & Other activities related primarily to initial planning for the implementation of new financial and supply chain systems as well as an increase in compensation costs, franchise tax expense and other tax-related costs.

 

Net Income; Interest Expense

 

For the three months ended March 31, 2019, net loss was $7.0 million compared with a net loss of $22.6 million in the same period in 2018. The $15.7 million improvement in net income year-over-year was due primarily to a $17.0 million pre-tax loss on the extinguishment of debt associated with the 2018 debt refinancing as well as decreases in interest expense.

 

Liquidity

 

On March 31, 2019, the Company had liquidity of $115.3 million, comprised of $20.5 million in cash and cash equivalents, and $94.8 million in available borrowing capacity under its revolving credit facility, compared to liquidity of $189.2 million on December 31, 2018.

 

The decrease in liquidity was primarily attributable to the use of $36.5 million for the payment of annual incentive bonuses, tax payments on stock vesting, and the employer 401(k) matching contribution, the use of $27.7 million for an acquisition closed in the first quarter, and a $5.6 million net reduction in accounts payable.

 

2019 Outlook

 

Hanger reaffirms its full-year 2019 net revenue and Adjusted EBITDA outlook as follows:

 

Revenue in a range between $1.075 billion and $1.105 billion, and Adjusted EBITDA in a range between $121 million and $126 million.

 

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

 

3


 

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, Thursday, May 9, at 8:30 a.m. Eastern time to discuss the Company’s first quarter 2019 financial results and business outlook.

 

To participate, dial 877-407-6184 or 201-389-0877 outside the U.S. and Canada, and use conference code number 13689515 . A live webcast and replay of the call will be available at the Investor Relations section of the Company’s web site at https://investor.hanger.com/events/conferences-and-corporate-access/default.aspx , and a replay of the webcast will remain available for one year.

 

Additional Notes

 

A reconciliation of GAAP and non-GAAP financial results is included in the tables provided at the back of this press release. The Company has provided certain supplemental key statistics relating to its results for certain prior periods. These key statistics are non-GAAP measures used by the Company’s management to analyze the Company’s business results that are being provided for informational and analytical context.

 

Accompanying supplemental information will be posted to the Investor Relations section of Hanger’s web site at www.hanger.com/investors .

 

About Hanger, Inc.  — Built on the legacy of James Edward Hanger, the first amputee of the American Civil War, Hanger, Inc. (NYSE: HNGR) delivers orthotic and prosthetic (O&P) patient care, and distributes O&P products and rehabilitative solutions. Hanger’s Patient Care segment is the largest owner and operator of O&P patient care clinics with approximately 800 patient care locations nationwide. Through its Products & Services segment, Hanger distributes O&P devices, products and components, and provides rehabilitative solutions. With over 150 years of clinical excellence and innovation, Hanger’s vision is to lead the orthotic & prosthetic markets by providing superior patient care, outcomes, services and value. For more information on Hanger, visit www.hanger.com .

 

This press release contains certain “forward-looking statements” relating to the Company. All statements, other than statements of historical fact included herein, are “forward looking statements.”   These forward-looking statements are often identified by the use of forward-looking terminology such as “preliminary,” “intends,” “expects,” “plans,” “anticipates,” “believes,” “views” or similar expressions and involve known and unknown risks and uncertainties. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks, and uncertainties, and these expectations may prove to be incorrect. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company disclaims any intention or obligation to update or revise any forward-looking information,

 

4


 

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 the Company’s internal control over financial reporting adversely affecting its ability to report its financial condition and results of operations in a timely and accurate manner; any litigation relating to the Company’s accounting practices, financial statements and other financial data, periodic reports or other corporate actions; changes in the demand for the Company’s O&P products and services; uncertainties relating to the results of operations or recently acquired O&P patient care clinics; the Company’s ability to enter into and derive benefits from managed-care contracts; the Company’s ability to successfully attract and retain qualified O&P clinicians; federal laws governing the health care industry; uncertainties inherent in investigations and legal proceedings; governmental policies affecting O&P operations; and other risks and uncertainties generally affecting the health care industry. For additional information and risk factors that could affect the Company, see its Form 10-K for the year ended December 31, 2018 as filed with the Securities and Exchange Commission. The information contained in this press release is made only as of the date hereof, even if subsequently made available by the Company on its website or otherwise.

 

SOURCE Hanger, Inc.

 

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

 

###

 

5


 

Table 1

Hanger, Inc.

Condensed Consolidated Statements of Operations

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

 

 

 

For the Three Months Ended
March 31,

 

 

 

2019

 

2018

 

Net revenues

 

$

236,419

 

$

233,995

 

Material costs

 

78,377

 

76,356

 

Personnel costs

 

86,711

 

86,108

 

Other operating costs

 

33,555

 

31,096

 

General and administrative expenses

 

28,282

 

25,636

 

Professional accounting and legal fees

 

2,700

 

4,846

 

Depreciation and amortization

 

8,773

 

9,330

 

(Loss) income from operations

 

(1,979

)

623

 

Interest expense, net

 

8,538

 

12,263

 

Loss on extinguishment of debt

 

 

16,998

 

Non-service defined benefit plan expense

 

173

 

176

 

Loss before income taxes

 

(10,690

)

(28,814

)

Benefit for income taxes

 

(3,739

)

(6,196

)

Net loss

 

$

(6,951

)

$

(22,618

)

 

 

 

 

 

 

Basic and Diluted Per Common Share Data:

 

 

 

 

 

Basic and diluted loss per share

 

$

(0.19

)

$

(0.62

)

Weighted average shares used to compute basic and diluted earnings per common share

 

37,001,977

 

36,498,482

 

 

6


 

Table 2

Hanger, Inc.

Condensed Consolidated Balance Sheets

(Unaudited - dollars in thousands)

 

 

 

As of March 31,

 

As of December 31,

 

 

 

2019

 

2018

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

20,511

 

$

95,114

 

Accounts receivable, net

 

136,891

 

143,986

 

Inventories

 

70,036

 

67,690

 

Income taxes receivable

 

734

 

379

 

Other current assets

 

17,058

 

18,731

 

Total current assets

 

245,230

 

325,900

 

Non-current assets:

 

 

 

 

 

Property, plant and equipment, net

 

81,951

 

89,489

 

Goodwill

 

226,632

 

198,742

 

Other intangible assets, net

 

16,415

 

15,478

 

Deferred income taxes

 

69,738

 

65,635

 

Operating lease right-of-use assets

 

103,676

 

 

Other assets

 

8,392

 

7,766

 

Total assets

 

$

752,034

 

$

703,010

 

 

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current portion of long-term debt

 

$

8,677

 

$

8,583

 

Accounts payable

 

50,173

 

55,797

 

Accrued expenses and other current liabilities

 

53,311

 

51,783

 

Accrued compensation related costs

 

22,228

 

55,111

 

Current portion of operating lease liabilities

 

33,675

 

 

Total current liabilities

 

168,064

 

171,274

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

Long-term debt, less current portion

 

490,623

 

502,090

 

Operating lease liabilities

 

83,693

 

 

Other liabilities

 

40,259

 

51,570

 

Total liabilities

 

782,639

 

724,934

 

 

 

 

 

 

 

Shareholders’ deficit:

 

 

 

 

 

Common stock

 

374

 

371

 

Additional paid-in capital

 

343,591

 

343,955

 

Accumulated other comprehensive loss

 

(7,461

)

(4,531

)

Accumulated deficit

 

(366,413

)

(361,023

)

Treasury stock, at cost

 

(696

)

(696

)

Total shareholders’ deficit

 

(30,605

)

(21,924

)

Total liabilities and shareholders’ deficit

 

$

752,034

 

$

703,010

 

 

7


 

Table 3

Hanger, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited - dollars in thousands)

 

 

 

For the Three Months
Ended March 31,

 

 

 

2019

 

2018

 

Cash flow used in operating activities:

 

 

 

 

 

Net loss

 

$

(6,951

)

$

(22,618

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

Depreciation and amortization

 

8,773

 

9,330

 

Amortization of right-of-use assets

 

9,161

 

 

Benefit for doubtful accounts

 

(20

)

(94

)

Stock-based compensation expense

 

3,265

 

2,585

 

Deferred income taxes

 

(3,749

)

(6,355

)

Amortization of debt discounts and issuance costs

 

375

 

1,701

 

Loss on extinguishment of debt

 

 

16,998

 

Gain on sale and disposal of fixed assets

 

(481

)

(594

)

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable, net

 

10,395

 

19,425

 

Inventories

 

(880

)

1,085

 

Other current assets and other assets

 

(1,433

)

650

 

Income taxes

 

(355

)

12,255

 

Accounts payable

 

(6,511

)

552

 

Accrued expenses and other current liabilities

 

492

 

(5,067

)

Accrued compensation related costs

 

(32,970

)

(35,789

)

Other liabilities

 

(1,829

)

(2,537

)

Operating lease liabilities

 

(10,082

)

 

Net cash used in operating activities

 

(32,800

)

(8,473

)

Cash flows used in investing activities

 

 

 

 

 

Purchase of property, plant and equipment

 

(6,897

)

(4,388

)

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

 

(1,429

)

(2,034

)

Acquisitions, net of cash acquired

 

(27,679

)

 

Purchase of company-owned life insurance investment

 

 

(598

)

Proceeds from sale of property, plant and equipment

 

980

 

840

 

Net cash used in investing activities

 

(35,025

)

(6,180

)

Cash flows (used in) provided by financing activities

 

 

 

 

 

Borrowings under term loan, net of discount

 

 

501,467

 

Repayment of term loan

 

(1,263

)

(431,875

)

Borrowings under revolving credit agreement

 

 

3,000

 

Repayments under revolving credit agreement

 

 

(8,000

)

Payment of employee taxes on stock-based compensation

 

(3,626

)

(2,150

)

Payment on seller notes

 

(1,773

)

(1,749

)

Payment of financing lease obligations

 

(116

)

(364

)

Payment of debt issuance costs

 

 

(6,757

)

Payment of debt extinguishment costs

 

 

(8,436

)

Net cash (used in) provided by financing activities

 

(6,778

)

45,136

 

(Decrease) increase in cash, cash equivalents and restricted cash

 

(74,603

)

30,483

 

Cash, cash equivalents and restricted cash, at beginning of period

 

95,114

 

4,779

 

Cash, cash equivalents and restricted cash, at end of period

 

$

20,511

 

$

35,262

 

 

 

 

 

 

 

Reconciliation of Cash, Cash Equivalents, and Restricted Cash:

 

 

 

 

 

Cash and cash equivalents, at beginning of period

 

$

95,114

 

$

1,508

 

Restricted cash, at beginning of period

 

 

3,271

 

Cash, cash equivalents, and restricted cash, at beginning of period

 

$

95,114

 

$

4,779

 

 

 

 

 

 

 

Cash and cash equivalents, at end of period

 

$

20,511

 

$

32,913

 

Restricted cash, at end of period

 

 

2,349

 

Cash, cash equivalents, and restricted cash, at end of period

 

$

20,511

 

$

35,262

 

 

8


 

Table 4

Hanger, Inc.

Segment Information:  Revenue, EBITDA and Adjusted EBITDA

(Unaudited - dollars in thousands)

 

EBITDA is defined as operating income before depreciation and amortization. Adjusted EBITDA is defined as operating income before certain charges, impairments of intangible assets, third-party professional fees in excess of normal amounts incurred in connection with our financial statement remediation, debt extinguishment costs, expenses associated with equity-based compensation, severance expenses and certain expenses incurred in connection with our acquisitions.

 

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
March 31,

 

 

 

2019

 

2018

 

 

 

 

 

 

 

Net Revenue (a)

 

 

 

 

 

Patient Care

 

$

190,601

 

$

188,507

 

Products & Services

 

45,818

 

45,488

 

Net revenue

 

$

236,419

 

$

233,995

 

 

 

 

 

 

 

EBITDA (b)

 

 

 

 

 

Patient Care

 

$

20,309

 

$

21,991

 

Products & Services

 

6,641

 

8,381

 

Corporate & Other

 

(20,156

)

(20,419

)

EBITDA (Non-GAAP)

 

$

6,794

 

$

9,953

 

 

 

 

 

 

 

Adjusted EBITDA (b)

 

 

 

 

 

Patient Care

 

$

21,392

 

$

23,011

 

Products & Services

 

6,885

 

8,651

 

Corporate & Other

 

(16,409

)

(15,425

)

Adjusted EBITDA (Non-GAAP)

 

$

11,868

 

$

16,237

 

 


(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.

 

9


 

Table 5

Hanger, Inc.

Reconciliation of Net Loss and Loss Per Share to

Adjusted Net Loss and Adjusted Loss Per Share

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

 

Earnings Per Share (or “EPS”) is defined as net income divided by our diluted common shares during the applicable period. Adjusted EPS is defined as EPS adjusted for impairments of intangible assets, third-party professional fees in excess of normal amounts incurred in connection with our financial statement remediation, debt extinguishment costs, severance expenses 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
March 31,

 

 

 

2019

 

2018

 

 

 

 

 

 

 

Net loss - as reported (GAAP)

 

$

(6,951

)

$

(22,618

)

 

 

 

 

 

 

Adjustments:

 

 

 

 

 

Amortization expense

 

1,230

 

1,953

 

Third-party professional fees

 

1,649

 

3,700

 

Loss on extinguishment of debt

 

 

16,998

 

Acquisition-related expenses

 

170

 

 

Severance expenses

 

(10

)

 

Adjustments prior to tax effect

 

$

3,039

 

$

22,651

 

 

 

 

 

 

 

Tax effect of specified adjustments (a)

 

(1,903

)

(4,717

)

Adjustments after taxes

 

1,136

 

17,934

 

 

 

 

 

 

 

Adjusted net loss (Non-GAAP)

 

$

(5,815

)

$

(4,684

)

 

 

 

 

 

 

Basic and diluted loss per share - as reported (GAAP)

 

$

(0.19

)

$

(0.62

)

Effect of above listed specified adjustments

 

0.03

 

0.49

 

Adjusted basic and diluted loss per share - as reported (Non-GAAP)

 

$

(0.16

)

$

(0.13

)

 

 

 

 

 

 

Shares used to compute basic and diluted loss per share

 

37,001,977

 

36,498,482

 

 


(a) “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% and 24% respectively for the 2019 and 2018 periods to the Company’s earnings from operations before taxes, after the incorporation of the identified above adjustments.

 

10


 

Table 6

Hanger, Inc.

Reconciliation of Net Loss to EBITDA and Adjusted EBITDA

(Unaudited - dollars in thousands)

 

EBITDA is defined as operating income before depreciation and amortization. Adjusted EBITDA is defined as operating income before certain charges, impairments of intangible assets, third-party professional fees in excess of normal amounts incurred in connection with our financial statement remediation, debt extinguishment costs, expenses associated with equity-based compensation, severance expenses and certain expenses incurred in connection with our acquisitions.

 

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
March 31,

 

 

 

2019

 

2018

 

 

 

 

 

 

 

Net loss - as reported (GAAP)

 

$

(6,951

)

$

(22,618

)

 

 

 

 

 

 

Adjustments to calculate EBITDA:

 

 

 

 

 

Depreciation and amortization

 

8,773

 

9,330

 

Interest expense, net

 

8,538

 

12,263

 

Loss on extinguishment of debt

 

 

16,998

 

Non-service defined benefit plan expense

 

173

 

176

 

Benefit for income taxes

 

(3,739

)

(6,196

)

Adjustments - net income (loss) to EBITDA

 

13,745

 

32,571

 

EBITDA (Non-GAAP)

 

6,794

 

9,953

 

 

 

 

 

 

 

Further adjustments to calculate Adjusted EBITDA:

 

 

 

 

 

Third-party professional fees

 

1,649

 

3,700

 

Equity-based compensation

 

3,265

 

2,584

 

Acquisition-related expenses

 

170

 

 

Severance expenses

 

(10

)

 

Further adjustments - EBITDA to Adjusted EBITDA

 

5,074

 

6,284

 

Adjusted EBITDA (Non-GAAP)

 

$

11,868

 

$

16,237

 

 

11


 

Table 7

Hanger, Inc.

Segment Reconciliation of (Loss) Income From Operations to EBITDA and Adjusted EBITDA

(Unaudited - dollars in thousands)

 

EBITDA is defined as operating income before depreciation and amortization. Adjusted EBITDA is defined as operating income before certain charges, impairments of intangible assets, third-party professional fees in excess of normal amounts incurred in connection with our financial statement remediation, debt extinguishment costs, expenses associated with equity-based compensation, severance expenses and certain expenses incurred in connection with our acquisitions.

 

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
March 31,

 

 

 

2019

 

2018

 

Patient Care

 

 

 

 

 

Income from operations - as reported (GAAP)

 

$

15,757

 

$

17,093

 

Depreciation & amortization

 

4,552

 

4,898

 

EBITDA (Non-GAAP)

 

20,309

 

21,991

 

Further adjustments to calculate Adjusted EBITDA:

 

 

 

 

 

Equity-based compensation

 

1,094

 

1,020

 

Severance expenses

 

(11

)

 

Further adjustments - EBITDA to Adjusted EBITDA

 

1,083

 

1,020

 

Adjusted EBITDA (Non-GAAP)

 

21,392

 

23,011

 

 

 

 

 

 

 

Products & Services

 

 

 

 

 

Income from operations - as reported (GAAP)

 

4,098

 

5,879

 

Depreciation & amortization

 

2,543

 

2,502

 

EBITDA (Non-GAAP)

 

6,641

 

8,381

 

Further adjustments to calculate Adjusted EBITDA:

 

 

 

 

 

Equity-based compensation

 

244

 

270

 

Severance expenses

 

 

 

Further adjustments - EBITDA to Adjusted EBITDA

 

244

 

270

 

Adjusted EBITDA (Non-GAAP)

 

6,885

 

8,651

 

 

 

 

 

 

 

Corporate & Other

 

 

 

 

 

Loss from operations - as reported (GAAP)

 

(21,834

)

(22,349

)

Depreciation & amortization

 

1,678

 

1,930

 

EBITDA (Non-GAAP)

 

(20,156

)

(20,419

)

Further adjustments to calculate Adjusted EBITDA:

 

 

 

 

 

Third-party professional fees

 

1,649

 

3,700

 

Equity-based compensation

 

1,927

 

1,294

 

Acquisition related expenses

 

170

 

 

Severance expenses

 

1

 

 

Further adjustments - EBITDA to Adjusted EBITDA

 

3,747

 

4,994

 

Adjusted EBITDA (Non-GAAP)

 

(16,409

)

(15,425

)

Total Adjusted EBITDA (Non-GAAP)

 

$

11,868

 

$

16,237

 

 

12


 

Table 8

Hanger, Inc.

Indebtedness

(Unaudited - dollars in thousands)

 

 

 

As of March 31,

 

As of December 31,

 

 

 

2019

 

2018

 

Debt:

 

 

 

 

 

Term Loan B

 

$

499,950

 

$

501,213

 

Seller notes

 

7,402

 

4,506

 

Financing leases and other

 

1,212

 

14,361

 

Total debt before unamortized discount and debt issuance costs

 

508,564

 

520,080

 

Unamortized discount and debt issuance costs, net

 

(9,264

)

(9,407

)

Total debt

 

$

499,300

 

$

510,673

 

 

 

 

 

 

 

Current portion of long-term debt:

 

 

 

 

 

Term Loan B

 

$

5,050

 

$

5,050

 

Seller notes

 

3,288

 

2,513

 

Financing leases and other

 

339

 

1,020

 

Total current portion of long-term debt

 

8,677

 

8,583

 

Long-term debt:

 

$

490,623

 

$

502,090

 

 

 

 

 

 

 

Net indebtedness:

 

 

 

 

 

Total debt before unamortized discount and debt issuance costs

 

508,564

 

520,080

 

Cash and cash equivalents

 

(20,511

)

(95,114

)

Net indebtedness

 

$

488,053

 

$

424,966

 

 

13


 

Table 9

Hanger, Inc.

Key Operating Metrics

 

 

 

As of and For the
Three Months Ended
March 31,

 

 

 

2019

 

2018

 

Same clinic revenue:

 

 

 

 

 

Decline (growth) rate on net revenue

 

(1.6

)%

1.1

%

Growth rate day adjusted (a)

 

(0.1

)%

1.1

%

Clinical locations:

 

 

 

 

 

Patient care clinics

 

697

 

683

 

Satellite clinics

 

104

 

108

 

Total clinical locations

 

801

 

791

 

 


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

 

14