| Contacts: | Ivan R. Sabel | (301) 986-0701 | |
| George E. McHenry | (301) 986-0701 | ||
| Hai V. Tran | (301) 986-0701 |
News Release
HANGER ORTHOPEDIC GROUP, INC. ANNOUNCES
NET INCOME APPLICABLE TO COMMON STOCK OF $0.17 PER DILUTED SHARE
FOR THE QUARTER ENDED JUNE 30, 2007, COMPARED TO A NET LOSS APPLICABLE
TO COMMON STOCK OF $0.42 PER DILUTED SHARE IN THE PRIOR YEAR
BETHESDA, MARYLAND, July 30, 2007 – Hanger Orthopedic Group, Inc. (NYSE:HGR) announces net sales of $160.4 million and net income applicable to common stock of $4.7 million, or $0.17 per diluted share, for the quarter ended June 30, 2007, compared to a loss applicable to common stock of $9.3 million, or a loss of $0.42 per diluted share in the same period of the prior year.
Net sales for the quarter ended June 30, 2007 increased by $7.5 million, or 4.9%, to $160.4 million from $152.9 million in the prior year’s comparable quarter. The sales growth was primarily the result of a $5.8 million, or 4.2%, increase in same-center sales in our patient care business, and a $1.1 million, or 7.5%, increase in sales of the Company’s distribution segment. Gross profit for the second quarter of 2007 increased by $3.9 million to $81.4 million, or 50.8% of net sales, compared to $77.5 million, or 50.7% of net sales, in the second quarter of the prior year. The increase in gross profit was due principally to the increase in sales.
Income from operations was $17.8 million in the second quarter of 2007, compared to $16.0 million in the second quarter of 2006, a $1.8 million, or 11.4%, increase primarily due to the aforementioned increase in gross profit, offset by a $2.0 million increase in selling, general and administrative expenses. The increase in selling, general and administrative expenses included a $1.1 million increase in labor expenses to support the growth in revenues and for merit increases, and a $0.5 million increase in the investments relating to the Company’s growth initiatives.
Net income applicable to common stock for the second quarter of 2007 was $4.7 million, or $0.17 per diluted share, compared to the prior year’s net loss applicable to common stock of $9.3 million, or a loss of $0.42 per diluted share.
Net sales for the six months ended June 30, 2007 increased by $10.9 million, or 3.7%, to $304.2 million from $293.3 million in the prior year. The sales growth was principally the result of a $9.1 million, or 3.5%, increase in same-center sales in our patient care business, and a $0.8 million, or 3.0%, increase in sales of the Company’s distribution segment. Gross profit for the first six months of 2007, increased by $5.0 million to $152.7 million, or 50.2% of net sales, compared to $147.7 million, or 50.4% of net sales, in the first six months of the prior year principally due to the sales increase.
Income from operations increased by $3.3 million in the first six months of 2007 to $30.2 million from $26.9 million in the same period of the prior year due to an increase in gross profit offset by an increase in selling, general and administrative expenses. Selling, general and administrative expenses increased by $1.5 million primarily due to a $1.3 million increase in labor costs and a $1.0 million increase in investments in our growth initiatives, offset by a $0.7 million decrease in non-labor expenses.
Net income applicable to common stock for the first six months of 2007 was $6.0 million, or $0.23 per diluted share, compared to a loss of $10.0 million, or a loss of $0.46 per diluted share, in the prior year.
Cash flow from operations was $17.9 million in the second quarter of 2007, compared to the prior year’s cash flow from operations of $5.7 million. This $12.2 million improvement was principally due to the premium paid on the extinguishment of debt in the second quarter of 2006 and the increase in net income in the second quarter of 2007. For the first six months of 2007, cash flow from operations was $20.1 million compared to the prior year’s cash used in operations of $7.1 million, a $27.2 million improvement. The increase was due primarily to the increased earnings, improved working capital and the $11.4 million premium paid for extinguishment of debt, as part of our refinancing in 2006.
Commenting on the results, Ivan R. Sabel, Chairman and Chief Executive Officer of Hanger Orthopedic Group, remarked, “We steadily improved our performance during the second quarter of 2007, as our patient care centers generated same center sales growth of over 4.0%. In addition to our sound financial performance, we also increased the pace of our acquisition program with the acquisition of Paris O&P, a multi-site provider of orthotic and prosthetic services; and the July 2nd acquisition of SureFit, a leading manufacturer and distributor of diabetic footwear in the podiatric market. We were also proud to announce the signing of a commercialization agreement with Teijin Limited to make the WalkAide® System available in Japan. Our strong performance, combined with the milestones I just mentioned, demonstrate progress on both our organic and strategic growth initiatives.”
Hanger Orthopedic Group, Inc., headquartered in Bethesda, Maryland, is the world’s premier provider of orthotic and prosthetic patient care services. Hanger is the market leader in the United States, owning and operating 621 patient care centers in 45 states and the District of Columbia, with 3,502 employees including 1,029 practitioners (as of 6/30/07). Hanger is organized into four units. The two key operating units are patient care which consists of nationwide orthotic and prosthetic practice centers and distribution which consists of distribution centers managing the supply chain of orthotic and prosthetic componentry to Hanger and third party patient care centers. The third is Linkia which is the first and only provider network management company for the orthotics and prosthetics industry. The fourth unit, Innovative Neurotronics, introduces emerging neuromuscular technologies developed through independent research in a collaborative effort with industry suppliers worldwide. For more information on Innovative Neurotronics, Inc. or the WalkAide, visit http://www.ininc.us. For more information on Hanger, visit http://www.hanger.com.
_________________
This document contains forward-looking statements relating to the Company’s results of operations. The UnitedStates Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-lookingstatements. Statements relating to future results of operations in this document reflect the current views ofmanagement. However, various risks, uncertainties and contingencies could cause actual results or performanceto differ materially from those expressed in, or implied by, these statements, including the Company’s abilityto enter into and derive benefits from managed care contracts, the demand for the Company’s orthotic andprosthetic services and products and the other factors identified in the Company’s periodic reports on Form10-K and Form 10-Q filed with the Securities and Exchange Commission under the Securities Exchange Act of1934. The Company disclaims any intent or obligation to update publicly these forward-looking statements,whether as a result of new information, future events or otherwise.
_________________
-tables to follow-
Hanger Orthopedic Group, Inc.
(Dollars in thousands, except share and per share amounts)
(unaudited)
| Income Statement: | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2007 | 2006 | 2007 | 2006 | |||||||||||
| Net sales | $ | 160,366 | $ | 152,855 | $ | 304,217 | $ | 293,300 | ||||||
| Cost of goods sold (exclusive of depreciation and amortization) | 78,945 | 75,346 | 151,494 | 145,561 | ||||||||||
| Selling, general and administrative | 59,714 | 57,751 | 114,872 | 113,378 | ||||||||||
| Depreciation and amortization | 3,878 | 3,759 | 7,626 | 7,447 | ||||||||||
| Income from operations | 17,829 | 15,999 | 30,225 | 26,914 | ||||||||||
| Interest expense | 9,125 | 9,914 | 18,465 | 19,414 | ||||||||||
| Extinguishment of debt | -- | 16,415 | -- | 16,415 | ||||||||||
| Income (loss) before taxes | 8,704 | (10,330 | ) | 11,760 | (8,915 | ) | ||||||||
| Provision (Benefit) for income taxes | 3,612 | (4,606 | ) | 4,884 | (4,020 | ) | ||||||||
| Net income | 5,092 | (5,724 | ) | 6,876 | (4,895 | ) | ||||||||
| Less preferred stock dividend and accretion-7% Redeemable | ||||||||||||||
| Preferred Stock | -- | 1,186 | -- | 2,751 | ||||||||||
| Less preferred stock dividends declared and accretion-Series A | ||||||||||||||
| Convertible Preferred Stock | 416 | 167 | 833 | 167 | ||||||||||
| Less beneficial conversion feature accretion-Series A | ||||||||||||||
| Convertible Preferred Stock | -- | 2,224 | -- | 2,224 | ||||||||||
| Net income (loss) applicable to common stock | $ | 4,676 | $ | (9,301 | ) | $ | 6,043 | $ | (10,037 | ) | ||||
Basic Per Common Share Data: | ||||||||||||||
| Net income (loss) | $ | 0.21 | $ | (0.42 | ) | $ | 0.27 | $ | (0.46 | ) | ||||
| Shares used to compute basic per common share amounts | 22,399,292 | 21,946,319 | 22,295,606 | 21,891,694 | ||||||||||
Diluted Per Common Share Data: | ||||||||||||||
| Net income (loss) | $ | 0.17 | $ | (0.42 | ) | $ | 0.23 | $ | (0.46 | ) | ||||
| Shares used to compute diluted per common share amounts | 30,049,735 | 21,946,319 | 29,908,304 | 21,891,694 | ||||||||||
Cash Flow Data: | ||||||||||||||
| Cash flow provided by (used in) operations | $ | 17,950 | $ | 5,697 | $ | 20,106 | $ | (7,074 | ) | |||||
| Capital expenditures | $ | 4,969 | $ | 2,560 | $ | 9,094 | $ | 5,177 | ||||||
| Increase in cash | $ | 10,632 | $ | 6,519 | $ | 6,947 | $ | 4,770 | ||||||
| Balance Sheet Data: | June 30, 2007 | December 31, 2006 | June 30, 2006 | December 31, 2005 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Working Capital | $ | 165,422 | $ | 157,208 | $ | 150,372 | $ | 135,551 | ||||||
| Total Debt | $ | 409,184 | $ | 410,624 | $ | 422,727 | $ | 378,431 | ||||||
| Shareholders’ Equity | $ | 175,879 | $ | 167,677 | $ | 156,927 | $ | 165,242 | ||||||
| Income Statement as a % of Net Sales: | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2007 | 2006 | 2007 | 2006 | |||||||||||
| Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
| Cost of goods sold (exclusive of depreciation and amortization) | 49.2 | % | 49.3 | % | 49.8 | % | 49.6 | % | ||||||
| Selling, general and administrative | 37.2 | % | 37.8 | % | 37.8 | % | 38.8 | % | ||||||
| Depreciation and amortization | 2.4 | % | 2.5 | % | 2.5 | % | 2.5 | % | ||||||
| Income from operations | 11.2 | % | 10.4 | % | 9.9 | % | 9.1 | % | ||||||
| Interest expense, net | 5.7 | % | 6.5 | % | 6.1 | % | 6.6 | % | ||||||
| Extinguishment of debt | 0.0 | % | 10.7 | % | 0.0 | % | 5.6 | % | ||||||
| Income before taxes | 5.5 | % | -6.8% | 3.8 | % | -3.1% | ||||||||
| Provision (Benefit) for income taxes | 2.3 | % | -3.1% | 1.6 | % | -1.4% | ||||||||
| Net income | 3.2 | % | -3.7% | 2.2 | % | -1.7% | ||||||||
Hanger Orthopedic Group, Inc.
| Statistical Data: | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2007 | 2006 | 2007 | 2006 | |||||||||||
Patient-care centers | 621 | 621 | 621 | 621 | ||||||||||
| Number of practitioners | 1,029 | 1,012 | 1,029 | 1,012 | ||||||||||
| Number of states (including D.C.) | 46 | 46 | 46 | 46 | ||||||||||
| Payor mix: | ||||||||||||||
| Private pay and other | 58.9 | % | 58.6 | % | 59.3 | % | 58.5 | % | ||||||
| Medicare | 30.1 | % | 30.8 | % | 29.7 | % | 30.8 | % | ||||||
| Medicaid | 6.0 | % | 6.3 | % | 6.2 | % | 6.4 | % | ||||||
| VA | 5.0 | % | 4.3 | % | 4.8 | % | 4.3 | % | ||||||
| Percentage of net sales from: | ||||||||||||||
| Patient-care services | 90.0 | % | 90.6 | % | 90.4 | % | 90.5 | % | ||||||
| Distribution | 9.7 | % | 9.4 | % | 9.4 | % | 9.5 | % | ||||||