HNGR - Earnings call transcript Q2 2019

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Operator

Greetings, and welcome to the Hanger's Second Quarter 2019 Earnings Call. [Operator instructions] And as a reminder, this conference is being recorded. Today we will have prepared remarks followed by a Q&A period. Instruction for questions-and-answers will be provided after the formal presentation.

It is now my pleasure to introduce your host, Seth Frank, Vice President of Treasury and Investor Relations. you. Thank

begin. may You

Seth Frank

Vice you. With Hanger's Asar, us Executive Kiraly, and Thank Financial Earnings Hanger's Quarter Conference Chief Executive Thomas and Call. today Officer; and Welcome morning. Chief Second Officer. to XXXX President President Good are Vinit

the discuss statements will forward-looking our others, our in release we include information Hanger from information risks we matters could risks forward-looking uncertainties on among in are meaning update SEC. subject discussed today. include, in forward-looking statements Those this Act Reform disclaims cause today have identified to any Securities filings results and that latest differ the with Private to those the the Litigation discussed of obligation portion to Hanger's earnings of of statements the Some of XXXX. materially actual These and call.

And Vinit. to call with the let's that, over hand

Vinit Asar

financial reported Seth, the second morning, today. Thanks, good and Hanger Thank you us results for joining for strong everyone. quarter.

of growth $XX.X million, same year-over-year. QX, X%. totaled clinic EBITDA $XXX.X a During Adjusted million basis on from revenues of the growing year. growth reflected net was Revenue prior X.X% XX.X%

Patient The led with way margin segment the increases. solid Care

getting Putting & perspective, May, which well, distribution performed Our April exceeded that segment timing the quarter track discussed during we second led of the on our noted by month, At a Services was some Products optimistic the also QX back in we expectations. the in business, prosthetic deliveries time, good call about pushed we out quarter. into the during that second and QX. remained

board. the by quarter for came services demand across the solid, driven strong Ultimately, in O&P

with halfway XXXX our across our mark. year-to-date expectations executing here you As numbers operating various well the is metrics, Hanger at will and our align see,

EBITDA our we net are outlook reaffirming adjusted As a XXXX. result, for and revenue both

I with the the momentum am business. encouraged in

as patients' execution our investments and are we to the efforts results. visit how having see on are and translating support clinicians the energy and multipoint across results. travels the lives, I Hanger these we are recent see of indelible the strategies can I impact that making excitement into our driving tangible clinics, network are and my During teams our believe the

We business being at care an Hanger on the focus differentiating and driven O&P unrelenting outstanding keen strong superior from on serve. attractive are experience, valuations. organic supplemented growth, to targeted, shareholders in communities acquisitions industry, emphasizing by partnerships patient outcomes The focus our in-market we continue focus these returns for O&P that profitable, in efforts with for the

Care was a Patient quarter, segment quarter, revenue second into in grew a as revenue segment QX. in Taking dive significant deeper swing this orthotics. organic in Net second a per Care quarter measure clinic from strong excluding again, X.X% day, same positive a grew continued QX. X.X%, key standout. our the of driven well the by growing our Patient Prosthetics, X.X% by category In prosthetics growth, acquisitions, as year-over-year. Orthotics quarter, results growth a X% as Hanger's well increased a performed for

and of orthotics shoes about As subcategories. a business orthotics, inserts. reminder, orthotics; off-the-shelf as and think Custom consisting Hanger's we X

total by model delivery clinicians, XX% Custom similar is with by fabrication orthotic prosthetics. approximately very orthotics largest to far custom our a orthotics totaling subcategory, and Custom evaluation of requires the revenue.

replicating on orthotics custom focus growth We the the achieved market. continue to our in above-market to investments prosthetics we've with success

shoes, and our high-volume to delivery model continuing which orthotics be lower both device are We to optimize and average categories. price per tend for off-the-shelf evaluate and

course on care improvement operating lower-performing can the challenges. Hanger year, different continued of Patient different regions. the is in a we we business local, from I the seeing country across were have parts perspective, at Health networks nationwide. are last metrics key had Care and Looking of longitudinal mentioned focused

seeing, are clinics, I of trends in we look in clinic previously network lagging same we across improvement As areas. encouraged the with our demonstrable am growth by

I these is Patient Hanger Looking through the regions in in of operating Net Care, note, compared Promoter and XXXX we of saw June other Score same for metrics clinic, across that current in notable, for to an is period is of XX revenue, XX our XXXX, improvements in the at impressive which our also step-up all integration acquisitions would XXXX. given productivity occurring. quarter-to-quarter uptick

of ability of and improving, clinicians overwhelmingly acceptance to rates In for is new addition, programs. our job positive to are recruit graduates seeing retain accredited we O&P offers and

completed no this than XXXX. Regarding anticipate acquisition incremental that less small of had very $X in acquisition May M&A, contribute million at of the will this impact a We revenue we material quarter. end on

these Looking of largely ahead, pipeline gone acquisitions organic O&P strategy. clinic supplement we continue clinics strong as of growth purchased Integration have to potential anticipated. see year-to-date to our a

Our cycle new revenue and model seamlessly clinicians into patients. and focusing as they them our tools is Hanger management workflow, to transition welcome into time possible can maximize as their on EHR systems intended so

quality with of Association literature. clinical The presented to studies. research referenced Mobility continues San a is Francisco only provided Analysis for we Amputees diabetics are years. MAAT in that VI the how outcomes. Hanger with the a showing in similar fact Diabetes at forefront dysvascular when meeting which mobility present out, amputees and to Recently, as the Hanger the out of to mortality The appropriate our detailed life, note, life care amputees period quality out at diabetic to X-year provider new study, technology, and at significant. diabetic X stood level maintaining amputees, satisfaction American of X mobility additional Of post-op be research years routinely clinical is We O&P enjoy and of on

outcomes, to that arena of confident clinical continue our leadership in the position compendium the proper and define solidifying studies O&P. this will care of are pathways We

which segment of was quarter, the second O&P in Turning our to Within distribution Products posted QX. X.X% O&P in this of revenue Services Services, distribution ahead line expectations. grew & Products the & driven growth, by business. top quarter grew segment, the Total another X.X%

supply portfolio the desire manufacturers' competency well as to much chain from our to new in benefit as of given catalog to logistics management. to shift with burden continue associated We size addition the our products of and Hanger,

remain pleased a industry with likely distribution would moderate line reminder, for most reemphasize sustainable the are overall while we that As rates performance of long top more business, our not term, growth the rates growth. we given

addition, from as our be Patient acquire In cases, in Care to distribution clinics, we segment may, customer continues business. an some existing O&P acquiring our

our segment, solutions the within Products largely is & performance therapeutic Also with line Services in trending expectations. Hanger's

helping quarter, as Underlying have appear trends industry to with While perspective. expected a business development financial revenue the to in solutions critical partner of be customers our declined nursing some our signs business therapeutic initiatives taken the a reposition business skilled as we indicate conditions. the stabilizing from to

of in As in $X anticipate to our for continue this total business revenue million a to we stated decline $X XXXX. million guidance, we

While date go some signs, approaches maintain cautious we see October. encouraging live as the we a in PDPM posture

our are Overall, pleased our is between with momentum through X of a year. by encouraged are that company, first we reflect as months some this our And quarters, business year. volatility results business on having the strategy the differentiation the results we our does while of

Promoter across pleased the of our initiative our implementation of well cycle results been completed the now with EHR as of revenue our Net have our as network clinics. Score investments recently in rollout We the near-complete management, of

systems. investment stated revolve will As chain and we financial have area around the our next in of past, supply our

opportunities the management. experience soon of area supply our on embarking Supply on a focus are differentiation plans core of chain We in area revenue outcomes. optimizing strategic Hanger's similar and patient Hanger, to to is chain for cycle,

as earnings we upcoming You calls more differentiator. this important finalize details will on hear approach to our

Tom go Tom? call I would Now through to in like to quarter hand to numbers second the over the detail.

Thomas Kiraly

you, Vinit. Thank morning. Good

of the EBITDA. increase reflected $XX.X or second in million and increase revenue or and as X.X% compared revenue in million quarter, with $X.X second adjusted million million in the During last year. XX.X% in $XXX.X Hanger adjusted EBITDA a reported a This quarter $XX.X

XX%. for the adjusted Our or driven revenue the which grew approximately of This million $X.X Patient by a EBITDA positive reflected segment's segment, $XX.X earnings our Care were revenue million by flow-through provided XX.X%, and $XX growth. in of million quarter and growth

benefited a factor to last the year-to-date in we and that period driver first half in primary reported X.X% prosthetics increased growth our have shift the prosthetic was have a the into overall orthotics by for of of overall quarter the compared contributed half and for This anticipated, a results first an was the resulted basis, first the key from clinic second grown As with X.X% in our prosthetic X%, This On quarter year. from year. the in same X% has clinic as growth rate that growth second average a deliveries X.X%. rate. same of by

stronger somewhat in increases we've prosthetics. of As complement to portion past Vinit the that to over positive years growth are shared, X begun the our we pleased orthotics we've achieved business the show relative in

quarters, has been X average the revenue last of prosthetics relatively organic rate orthotics stable. has the X.X% growth while Over been

the as that year in rate we of XX rate related well During basis up while offsetting in patient settle growth points the our increased the we X%. non-payment effects systems this currently point of of see quarter, our X% of non-payment rate reflected XXXX, patient which disallowance decrease did increase from XX quarter second basis an rate, a brought a future patient periods, around aging favorable as believe accounts, of will In X.X%; experience conversions. at patient prior non-payment to and write-offs to

was increases fixed during the nature reimbursement net XX.X%, quarter EBITDA materials' primarily Care which this we cost Patient benefit result revenue reflected to business in Patient rate. which in our the of cost, Care believe improvement XX.X% expansion of a margin was Our from segment. of declined and the its in slight of primarily a

in prior to Personnel XX.X% in declined costs XX.X% compared the segment the period. with of as year revenue

expenses on EBITDA in of a personnel increase benefiting from in for also contributed the from to segment organizations. year XX.X% of from prior cost second XX.X% revenue our some to in and internal of addition other number an higher period the the of support fixed relatively FTEs, benefited the a XXXX. These quarter to in decrease the factors margin In

XX has For Care's basis the by to margin points XX.X%. year-to-date, Patient increased

quarter bear Care earnings fourth quarter the and and is our the mind that in margin Patient our Now lowest being seasonal, business quarter our with please highly first highest. being

With in over we XX.X% currently Patient that that reported segment XXXX. will full for year, mind, the the the expansion we anticipate margin trends Care these demonstrate in we in

that relates XX, notice acquired work-in-process filings, will results. at with the quarter this million of final In June to compared A majority the balance of inventory to Care associated with note financial first as of WIP WIP the increase as Patient end approximately or increase of Unlike reflected our an our clinics. the XXXX. reviewing $X you the our quarter,

likely the same in devices sales we same second So quarter to underlying in clinic contribute to revenue to quarter. manner third the the these is related third that quarter not saw

earnings in our Services segment. decline Our offset Products strong of were Care Patient the results partially by &

While in overall solutions, revenue the lower business, XX.X% of by The from margins in XX.X% from decline with distribution quarter this million drove $X grew of decrease adjusted for the that in in $X an coupled million $X.X or million for was X.X%, therapeutic services for margin and year-to-date. segment EBITDA the segment. the revenue

the and planning an with we for with the these chain expended EHR the implementation implementation expense for expense to in anticipate current and for of total first connection our will the we during currently we've million this, On with corporate factor and by $X in We The this systems. year-to-date. million in in increased in continue the systems will of full primary quarter, new the to for our XXXX. incurred our expenses incur implementation-related and $XXX,XXX each $X.X that result supply combined the year-to-date approximately $X.X design and associated estimate major that a year In of million adjusted and $X.X for in will relates increased approximately XXXX. initial million We $XXX,XXX million chain in systems coupled EBITDA financial costs year. financial project, when in XXXX we the expenses our currently $X.X implementations our supply for quarter annual basis, anticipate corporate that

capital financial our implementation with for and XXXX, centers. outlay as addition we these supply also increase as of in chain distribution implementation In well to both an reconfiguration expenses, systems' anticipate in the a in connection

regarding corresponding calls. financial future XXXX. initiatives and contribution supply with additional to margin in color commencing returns in these and in Our increases investments are and provide our you the systems chain expense plan efficiencies to We expected provide

excluded mind These from that of When last reviewing quarter, our XXXX. second to also quarter $X.X were a settlements our $X.X operations for favorable and the gain the second during we important second it's million a in gains from year. in recorded believe total pretax gain quarter in settlements results bear non-GAAP of reported recognized we from the million results

few indebtedness. flows a our discussing spend and minutes cash I'll Now

During the the flow, $X.X increase was by period. adjusted which primarily growth during EBITDA operating million compared cash year. company's Hanger an driven million in reflected in produced increase This the quarter, to of prior $XX.X as the

Capital therapeutic equipment, $XX increase million period. expenditures, over which including the $X.X purchase of the were an of million, prior reflected year

to our We significant we the We estimate the to any as did cash to be continue spend capital not the we add of end expected any $XX approximately of results. or the flows in And for during acquisitions earnings XXXX. full year approach that we acquisitions second would operating million will significant not complete quarter. that expenditures do XXXX close year,

net the of total cash million of million. the our end ratio of facility quarter, cash indebtedness combination cash to which free of the the liquidity EBITDA. $XX.X balances untapped As $XX.X to accumulation had a we $XXX to This of at which $XX.X $XXX million, million down quarter. by our approximately reflected increased X.Xx a of of brought our $XX.X At million revolving million, equates of end credit capacity leverage the result and flow, an adjusted of retained

minutes Now our XXXX. of spend for outlook balance the discussing a I'd like few to

fixed and swings As it and our second it in business its Hanger's that be both have can to the nature first cost earnings of produces performance positive during inherently negative. is quarterly the seasonality, significant due and that structure demonstrated, quarters

with viewed quarter results, positive they any results, in our one the trends believe of not we we're the underscore pleased While our importance first certainly the quarter when combination in Hanger's viewing with context that second of also quarter.

Our directly for through have outlook brought in our the range year-to-date June results us line with year. original

quarter strong view, second it. So not original have altered to our results they've reinforce served our instead

of EBITDA believe to adjusted million. and in $X.XXX range and provide Hanger that range will $X.XXX in will continue be of $XXX that the the $XXX billion, We billion revenue to our million

will the quarterly a coming currently you last strongest for earnings Accordingly, the was our more such, believe as is it our year And recall, perspective, comparison will year by to prior for a comparison well. a tight present of as quarter quarter, far quarter. come that the will significantly seasonal the which have positive From third for believe quarter one performance. fourth we and we reasonable our will in as which a quarter growth the year we

the With that, I'll turn up it operator the call back to open over questions. for to

Operator

comes from Please question Tanquilut Brian Jefferies. first The ahead. go instructions] [Operator with

Brian Tanquilut

Congratulations on a good quarter.

EBITDA, the organic putting can to for think power X% double-digit earnings you a growth same translation So of think I first EBITDA I for to guess Vinit, if algorithm past about X% is my this question, the store, the get company, mean growth? you're in or you've up I of growth, line put the store about you like I about X% the translated growth EBITDA. you is, kind same know same-store of good talked to where the top quarter, XX% as way to this up

Vinit Asar

organic think X% get it. to should Yes. of basically we We at how growth. growth, range this about us look X%, in EBITDA That's

Brian Tanquilut

inflection the the you've out, about I then, seeing all from things, are the guess, think? mean, all a step in And rolling where we it's that in about in taking organic initiatives technology, the to whether marketing using back those you acceleration we laid past and or process you've out also talked your the do and benefits? these see and growth scale I are of the point,

Vinit Asar

year same you take in X.X%. year. investments. about year rate of organic we're organic think half The rate growth of Certainly, those full see compared is the the year the was growth clinic to XXXX, to I last X.X% effect beginning first if this

to beginning see we're So it.

the still done, feeling far. there's to we're think seeing be good I but work about we're results so

Brian Tanquilut

the like in the added integration the value look big does year, guess question the to guys? those some that is are in for what done the and I nothing you of deals the my there you the then last quarter, business and I how feeling are on And front, they've deals M&A that deals you've about year-to-date? earlier but terms this strategic of know pipeline

Vinit Asar

Yes. that and of We're on into these that this Really, like. and the integration, with pleased last year them businesses so our on come Hanger, into putting late the folks we've year brought EHR focus we Hanger year. the first system

with joining that's Hanger. So the we're happy interested are in pleased how working in terms out of with with we pipeline. very the that also discussions We're having folks are

you updated we and So we'll, close strong, deals. keep the obviously, pipeline remains as more still

Operator

go Instructions] [Operator question Solow The comes with next Please Larry CJS. from ahead.

LarrySolow

in big you the quarter. improvement a Obviously, had

QX was last, sort of going in into specifics, like could QX. as side And think, obviously discuss the some to that slow X% the do a maybe forward? sort from you on the that a do growth number? into without we done Some declines of prosthetic picking of go think the more even which over nice carryover looks is it you've X X% you I a on up years, you sustainable then slow also see the But range, improvement just to prosthetic improvement, Orthotics from side,

Vinit Asar

Yes.

I Larry. think is the observation exactly right,

In years, on we averaging about a And has couple lumpy. that's just our terms prosthetic reminder, X%. get it the a And go-forward of last could achievable growth basis. think of been

is in which the show orthotics. orthotics remarks, focusing side. to on custom prepared said showing next uptick number this begun that quarter, back going term. was could focus I it quarter, could and And the on initiatives well, prosthetics we've think put a for we try in all question custom a look as as we number we've get asked one my high And the You longer to get in the that's piece, prosthetic nice you low beginning to the the at are and on previous why

see think seen side. we side we're of orthotics we've uptick, remains to investments further prosthetic the a it put feeling when about be custom So the results on very and on good in but the today the I

Larry Solow

And the on growth acquisitions have obviously, and the EBITDA the X% power full the for model in did the any -- growth, margin quarter, they're know same-store reflection margin, on of had I that margin? said all basically the the as to the of you pointed with at that did contribution breakeven. or segment on the line? Brian XX% operating out, EBITDA to bottom close operating But sort year year-over-year that help the sales

Thomas Kiraly

Larry, acquisitions very very of a this low amount contributing, activities are this It's certainly Tom. flow-through because earnings is but that primarily at from described. the Vinit not point, meaningfully. The integration Yes. coming them of

Larry Solow

And assume going and would out then historical performing Okay. sort they next -- forward, we corporate look that as should into in obviously, do these line acquisitions, performance? I year, with we start of

Thomas Kiraly

We believe so. Yes.

Larry Solow

is real a with is of relative competitors Okay. years an out? it's level, the the few and industry? been last -- How update the how times much you increased pretty the them, about couple reimbursement. some ago? through your trail for industry how don't requirements paper years, on say, turbulent regulatory global -- Obviously, if to, but on do I know just shake doing a How have from read-through any going

Vinit Asar

Yes.

X%. might to of seeing. it's X% -- been what's kind think is what think it we're there that we many have growth industry to I mean I rate settling is X.X% of of seeing a but are that settling at overall ago, higher what years X.X% I is

such time reimbursement orthotics going competitive a heavily every a lower type you're In they're terms out type the of orthotics, parts bidding of on going there a environment, devices, industry little as of or things piece to a some in of going for off-the-shelf once hear the bit there's regulatory forward. focus off-the-shelf that tougher and the have while

be the to right Custom we're on to this sight provider to view want is that I taking I believe, now. service do, of side thing don't that focusing the our our and think a but prosthetics full portfolio custom sources. referral do orthotics we think, we custom right want we're is to we lose

put figuring now, with be patient how as the we low-end from those But the well. clinical So the custom with outcomes shoes for we're inserts and out on Hanger's actually pleased and will engagement side orthotics and we perspective, we pieces. focus deliver

Larry Solow

will that could that Okay. believe, were real more to segment, maybe & you gears declined, Then EBITDA switching I actually color us continue? grew million, the Do outlook? therapeutic just on a sales you $X Services services. bit I just assume slightly. -- related decline what's is actually fast, and give the on revenue little although primarily the declines But Products expect

Thomas Kiraly

This are factors three There's to contributing really the decline. is Tom. that

of First pleased the growth very distribution. in with we're showing we're all,

there that in growth, higher coming be is certain margin accounts. where differences of may those accounts with though, volume Some

a business the Secondly, and year-over-year of invested that this margins given for part year contribution larger support we business. this that growth. that affected That's segment its from the a And have distribution segment. have of difference or in that's

And part segment. then solutions you see as revenue therapeutic down, you stated, that why of of in $X a certainly is million and thirdly, is decrease year-over-year the this

Now more. through that of will we're certainly, second the for the the is will shine it the Care when bit belief does, economics Patient stabilize. a And some we seeing we're our part even -- growth on that the that point, segment, at larger the segment, that as continuing foresee forward seeing that do segment, going and question, decline,

this could and hopeful we in decline done we future have earnings we're had demonstrate think what would the can all I not quarter that years. that that see in had segment, we

Operator

management the This for [Operator any question-and-answer our to session. I Instructions] closing concludes to back would conference over turn remarks. like

Vinit Asar

as sustainable confident our basis for you advantage signs quarter appropriate with sustainable is Look, making Hanger a further it a year-to-date drive Thank clinical, that differentiation build the to attractive, right staying to we We're our up, where remain is ever and been. results the Patient create to believe shareholders. determined focus it's to operational plan. mission maintaining growth. as And position and value confident markets could also the executing a our and continue strategy I'm investments We're prosthetics. really patients our national seeing pleased as encouraging strongest highly for to segment, and our to Great. our the our and organic second sit relative strategy values your we questions. in and we're and one, all orthotics of you of momentum we're sum we're long-term Care the company and the will for in we to the see. And competitive true leader on a financial by on course,

And we country seeing your meetings conferences forward of during around you months, and appreciate today participation to look next many X.X and the the much. at so thanks very

Operator

you. today's The has now Thank concluded. thank And presentation. conference for you attending

You now disconnect. may

Hanger (HNGR) 11 Aug 192019 Q2 Earnings call transcript