Hanger, Inc.
Q1 2019 Earnings Call Transcript

Published: 12 May 2019

[Company Representatives:]

Vinit Asar - President, Chief Executive Officer Thomas Kiraly - Executive Vice President, Chief Financial Officer Seth Frank - Vice President, Treasury and Investor Relations

[Operator:]

Greetings, and welcome to the Hanger’s First Quarter 2019 Earnings Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Seth Frank, Vice President of Treasury and Investor Relations. Thank you. You may begin.

[Seth Frank:]

Thanks. And good morning. Welcome to Hanger’s First Quarter 2019 Earnings Conference Call. With us today are Vinit Asar, Hanger’s President and Chief Executive Officer; and Thomas Kiraly, Executive Vice President and Chief Financial Officer. Some of the information discussed today will include forward-looking statements in the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause Hanger’s actual results to materially differ from those we discuss today.

[Vinit Asar:]

Thanks, Seth and good morning everyone. Thank you for joining us today. During Q1, we achieved net revenues of $236.4 million, an increase of 1% from the prior year and flat on a same clinic day adjusted basis. Adjusted EBITDA of $11.9 million reflected a decline of $4.3 million in the quarter. Revenue growth in the quarter was below our expectations, and we believe this relates primarily to the timing of our prosthetics deliveries in our Patient Care segment. We remain positive in our view of the demand for our O&P services, the strength in our referral patterns and the overall industry fundamentals. As a result, we are reaffirming both, our revenue and earnings guidance for 2019. When comparing Q1 to the year ago quarter, there are three factors that impacted our results

[Thomas Kiraly:]

Good morning. In reviewing Hanger’s earnings for the quarter, the company reported adjusted EBITDA of $11.9 million on revenue of $236.4 million. This reflected a decrease of $4.3 million and adjusted EBITDA on a $2.4 million increase in revenue. As Vinit shared, we believe there are three primary factors that impacted our results

[Operator:]

Thank you. . Our first question comes from the line of Brian Tanquilut with Jefferies. Please proceed with your question.

[Brian Tanquilut:]

Hey good morning guys. Vinit, just to hit on the revenue shortfall for the quarter first. So a few things, are you seeing the bounce back of that already, or are you seeing a big uptick in April as basically the demand has shifted by a month or so from early February to late February? Is that a good way to think about that in terms of your, visibility and confidence and your ability to pick back up a lot of the revenue that you missed in Q1?

[Vinit Asar:]

Yes, we are seeing that bounce back in April, and we feel good about what we saw in April for sure, and we do attribute it to deliveries that didn’t occur in March.

[Brian Tanquilut:]

Okay. And then kind of just to clarify, when you say deliveries that didn’t occur, I mean this is not - this is really more of just the timing of prescriptions coming in right, it’s not like a supply chain issue, it’s not a delay on your part in terms of your ability to deliver, right?

[Vinit Asar:]

Correct. Yeah, when we refer to delivers, we’re talking about actually fitting the patients, the actual patient fitting process. So, as I mentioned in my remarks that our patient pipeline build started later in the year than normal, so it started later in February than normal. So the general process, the way to think about it, is we evaluate the patients and then we fabricate and then we fit. So it really has nothing to do with the supply chain as much as the patient pipeline build started later in the year.

[Brian Tanquilut:]

Got it. And then Tom, as I think about cadence for earnings during the year, I mean I know Q1 is your smallest, I think it’s like what 12% of the year. How should we be thinking about, how the year will progress without giving guidance to the quarters?

[Thomas Kiraly:]

You know, Brian as you know, the bulk of our revenues and the growth typically occurs later in the year, particularly in the fourth quarter. And with the high flow through that the company has I think from an earnings perspective, you’d really be seeing the earnings growth, you know in the back half, particularly in the fourth quarter as well.

[Brian Tanquilut:]

All right, got it. All right, thanks guys.

[Operator:]

Thank you. Our next question comes from the line of Larry Solow with CJS Securities. Please proceed with you question.

[Larry Solow:]

Great, good morning guys. Just a couple of follow-ups just on the - little bit of the shortfall there. On the sort of late build, was there any weather impact? I know January was sort of a rough month, I know you guys don’t like to call it weather, but was that may be an impact and are patients potentially sort of just deferring with deductibles and all, little bit more over the last few years? Have you noticed any shift out? Or do you think that’s sort of an anomaly?

[Vinit Asar:]

Yes, I think there is probably a couple of factors in terms of the actual timing and what caused the delay build in the patient pipeline. I’d say weather certainly was a factor, but I would say that was not the only factor because typically, Larry as you know we have weather every year during the first quarter.

[Larry Solow:]

Right.

[Vinit Asar:]

This year, what did happen, we saw it in a couple of regions, you know like the mid-west and the north-west. We had extended weather patterns, where clinics were closed for, you know a week at a stretch. And then when you think of our patients, our prosthetic patients especially, sometimes it’s difficult for them to get to appointments even when the clinics are open. So I’d say weather, you know was certainly a factor but not the only factor.

[Larry Solow:]

Okay. And then in terms of any change you’ve seen in the last few years, in terms of patients sort of deferring a little bit, because of the sort of employers putting, you know, sort of you know more responsibility in their hands of high deductibles and co-pays? Has that really changed your business at all, or..?

[Vinit Asar:]

Yes, we haven’t seen changes in those sorts of trends with payers, etcetera. You know there was another factor. I would say, those again a minor factor where you know, every year we do have our annual education fair where we pull about 900 of our clinicians out of the field, that happens every year to do their training. This year, we did it slightly later in February than normal that likely was another factor. So, there is a bunch of small things that occurred that caused us to believe that this was a timing issue.

[Larry Solow:]

Okay. And then just lastly, you mentioned sort of, you know some strength in your sort of confidence, encouraged by strength in your referral patterns. Obviously, you’ve had a lot of initiatives going on over the last couple of years to sort of differentiate yourself. In terms of referral ‘patterns’ any more qualification you can give us there on that?

[Vinit Asar:]

Yes, certainly. You know we feel very good about the programs that we’ve put in place over the last 1.5 year, especially the prosthetic programs that now had, you know we’ve had time to see how we are doing. And we are seeing, you know wins in the new patient acquisitions. In new amputees, we’re certainly seeing our message resonate with the referral sources. The focus we are putting now is on the existing patients and actually gaining market share. So, though we are seeing the prosthetic programs really be effective, as new amputees and now we are beginning to look at market share, how do you take that patient, that’s had the same prosthetics for the last five or ten years with an independent or an existing prosthetics and how do you convert that patient over is what we’re focusing on.

[Larry Solow:]

All right. And just lastly, I know you guys don’t guide, you know on prosthetics versus orthotics, but I think, you know encouraging to see the orthotics piece sort of, you know always come back to flat in a seasonally slower quarter. Just on the prosthetics piece, you mentioned a very difficult comp, 6% plus growth in Q1 last year. Do you still feel sort of confident in your, again I know you don’t guide specifically, but I think it grew little over 3% last year? Do you see a similar, you know or it may be potentially modestly better performance in prosthetics in ‘19 despite the slow start?

[Vinit Asar:]

Yes, overall, we feel very good about the programs, as I mentioned for prosthetics. We’ve just started the programs in orthotics, and I think the custom orthotics piece did show, you know the growth, so we’re happy with that. And overall, on a same clinic basis, you know we are confident that we will see an improvement overall in 2019 versus 2018.

[Larry Solow:]

Okay, got you. Thank you very much.

[Vinit Asar:]

Thanks Larry.

[Operator:]

Thank you. . Our next question comes from the line of Dana Hambly with Stephens. Please proceed with your question.

[Dana Hambly:]

Hey good morning. Maybe just a little more context on the prosthetic deliveries. Just, the sheer number of deliveries, and I’m coming up with a number may be, you know several hundred, which kind of implies less than one delivery per clinic. So, it doesn’t seem that to me for you to be able to pick that up. Am I thinking about that right if not, what am I missing?

[Vinit Asar:]

Yes, Dana that’s how we’re thinking about it as well. You know, whether you look at our network of 800 clinics or you look at our 1,500 clinicians, you know if it’s a couple of hundred deliveries, and your math is right, that’s how we look at it as well, you know couple of hundred deliveries, couple of hundred prosthetic devices, you know causes that swing that way less than one per clinic. That, it didn’t get through, again it goes back to the patient pipeline build. So that’s why we believe it’s certainly not interminable, and we are seeing some of that come back in April.

[Dana Hambly:]

Okay. And then on the orthotics, pretty good growth. Did you break that up between the custom and then the off-the-shelf and the braces?

[Vinit Asar:]

No, we didn’t, and we generally don’t.

[Dana Hambly:]

Okay.

[Vinit Asar:]

I mean it’s safe to say that the customer orthotics programs that we have put in place, we’re feeling positive about it.

[Dana Hambly:]

Okay. And then just lastly, I know it’s still early innings on the acquisitions that closed kind of late January, but how is the - you hadn’t done one of these in a while, big one anyway. How is that integration progressing?

[Vinit Asar:]

Yeah, we are feeling good about the integration. You know everything is going exactly per plan, and we are happy with some of the resources we put in place also to facilitate that integration, which is new for us. We never had a group that helped with integrations before and now we’ve put that group in place and we’re feeling good.

[Dana Hambly:]

Great. All right, thanks very much.

[Vinit Asar:]

Thanks Dana.

[Operator:]

Thank you. We have reached the end of our question and answer session. I would like to turn the call back over to Mr. Asar for any closing remarks.

[Vinit Asar:]

Great. Thanks, Michelle. Well thank you all for joining today. Look, in closing I want to reiterate, we believe that the dynamics in the quarter are certainly not indicative of any economic or cyclical issues based on what we’re seeing. And as I said earlier, you know we’re confident that by staying true to our values and mission of the company and certainly maintaining the course, you know we will create sustainable long-term value for both patients and shareholders. So on that note, we look forward to speaking with you at our next earnings call. Thanks very much.

[Operator:]

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation. And have a wonderful day.