Hanger, Inc.
Q4 2018 Earnings Call Transcript

Published: 15 Mar 2019

[Operator:]

Greetings, and welcome to the Hanger's Fourth Quarter and 2018 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. 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:]

Good morning and thank you. This is Hanger's fourth quarter and 2018 earnings conference call. With us today are Vinit Asar, Hanger's President and Chief Executive Officer; as well as Thomas Kiraly, Hanger's 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. Those risks include among others, matters we have identified in the forward-looking statements portion of our latest earnings release and in our filings with the SEC. Hanger disclaims any obligation to update forward-looking information discussed on this call. And with, I would like to introduce Hanger's President and Chief Executive Officer Vinit Asar.

[Vinit K. Asar:]

Thank you Seth and good morning everyone. 2018 was a good year for Hanger on many fronts. We delivered net revenues of 1048.8 million and adjusted EBITDA of 121.1 million, results that provide a good foundation for our path ahead and are consistent with the guidance we have provided for 2018. We began the year by refinancing our outstanding debt at materially lower interest rates providing us additional financial flexibility. We continue to lower third party professional fees. Operationally we enjoyed growth in our prosthetic and custom orthotic business as well as had a banner year in our O&P distribution business. These factors enabled us to drive significantly higher free cash flow and adjusted earnings per share in 2018. As a result our balance sheet and liquidity is strong and markedly improved compared to where we ended the year in 2017. 2018 was a year to complete our preparation work and build the foundation for our future growth. Starting in 2015 we embarked on a multi-year plan to reposition and differentiate Hanger in the O&P industry. While our national presence is notable we believe achieving a sustainable, competitive advantage by ensuring a scalable platform for organic growth is our best path to maximize value. We have used words such as disruption to articulate our mission for how we will innovate and redefine what constitutes world class orthotic and prosthetic healthcare services. Our efforts have begun to show initial returns. We are seeing above market growth in prosthetics resulting from our strategy. Patient non-payments continue to decline and we believe that our disallowed revenue is at the low end of the O&P industry. In order to achieve sustained growth we've invested in technology including an enterprise wide electronic health records system. I am pleased to announce that at the end of this month we would have completed the implementation of our EHR system across our network. At the patient care segment level the business has come a long way. Adjusted EBITDA margins in patient care has increased by 310 basis points between 2016 and 2018 and with continued focus on execution we believe margins can further improve in 2019 and beyond. Recapping 2018 briefly, overall reported revenue grew 0.8% or 1.2% excluding the impact of an accounting change resulting from the adoption of ASC 606. We achieved 3.3% growth in prosthetics, a solid performance that we believe outpaces the industry. In addition our O&P distribution business had an outstanding year growing 5.7% driven by market share gains as well as added product offerings to the independent O&P customers. Growth was offset by a modest decline in orthotics specifically off the shelf orthotics and shoes and inserts as well as a decline in our therapeutic solutions business within the products and services segment. 2018 same clinic growth within patient care was 1.3% or 0.9% on a per day basis which was a good performance driven by gains in prosthetics. Shifting briefly to Q4 results and Tom will spend a fair amount of time on the details. Results were generally as we anticipated. Net revenue was 284.9 million generally consistent with the fourth quarter of 2017 excluding the impact of ASC 606. Adjusted EBITDA was $40 million which is slightly higher than the previous year. Within patient care our prosthetic growth of 1.8% for the quarter continued to reflect our operational focus. As we have seen through 2018 our off the shelf orthotics revenues as well as our revenues for shoes and inserts posted a decline that resulted in an overall same clinic revenue growth of 0.3% for the quarter which was up against a strong quarter in the previous year. Before I touch on 2019 and beyond let me provide an overview of the growth strategy for our patient care segment and how it manifests itself in our results and outlook. During the last couple of years we have invested in infrastructure so we can have the most informed view of the O&P market to ensure we implement sustainable differentiators that enable growth. In 2018 I shared with you the five differentiators that we have begun to capitalize on which include our focus on clinical outcomes, patient engagement, as well as our revenue cycle management function. Building on these differentiators our strategy is to ensure that we execute on generating healthy organic growth and supplement it with tuck-in acquisitions where appropriate. In evaluating organic growth we have focused extensively on understanding the incidence and prevalence of amputations in the U.S. and triangulating that data by MSA to then focus resources on patients and referral sources in target markets. As a result I believe that we understand our prosthetic market growth opportunities better than ever before. This strategy has been successful. Hanger's prosthetic business which accounted for approximately 54% of our patient care segment sales in 2018 is up from 52% in 2016 and we have seen the desired results in our prosthetic growth rate in 2018. When we think about orthotics business we generally think of it in three broad service categories; custom orthotics, off the shelf orthotics, and shoes and inserts. During 2018 unsurprisingly we saw a decline in our orthotics business primarily driven by our low margin off the shelf orthotics as well as shoes and inserts. Our reported same clinic growth reflects the total case patient care business and while important is impacted by this intentional decline in the two categories of lower margin orthotic services. Towards the latter half of 2018 we expanded our marketing focus to better address the custom orthotics part of our business, in a similar manner as we did with our prosthetics business because we believe there is an opportunity for profitable growth. Our expectation in 2019 is that we will see an improvement in our overall same clinic revenue compared to 2018 driven by continued strength in prosthetics and some improvement in custom orthotics. Our confidence in 2019 is driven by a few factors. In our conversations across the industry it is clear that key stakeholders are beginning to recognize and appreciate our differentiators. Our clinical credibility is at an all time high as we present findings from our MAAT series of studies at surgical, medical, and rehabilitation conferences. I am proud to note the recent publication of MAAT V, the fifth in the series which analyzes the benefits of prosthetic care in promoting increased mobility and quality of life. We are also just beginning to engage in strategic relationships with integrated delivery networks and academic institutions to explore ways in which we can more tightly integrated O&P care into the post acute and rehabilitative medicine arena. Our patient experience as measured by our net promoter score continues to trend strong at 82 as off the end of the fourth quarter. The reimbursement environment going to 2019 is constructive and we are pleased that commercial payers are beginning to see some of the benefits of our national scale. Now let me provide some color on our inorganic growth plans. As we have mentioned in our press release Hanger has commenced selective O&P clinic acquisitions. We approach each potential acquisition opportunity with a disciplined process that evaluates key criteria such as geography, quality of clinicians in the business, compliance to regulations and reimbursement requirements, as well as a palpable desire to join our team for the long-term. During the last year we've also reengineered our approach on integration of these acquisitions to ensure success after close. Our pipeline of independent O&P patient care candidates is excellent and we anticipate that we will continue to supplement our organic growth with acquisitions in a very thoughtful and deliberate manner. So let me recap our growth plans in the context of our 2019 guidance we have provided. The midpoint of our revenue guidance includes approximately a $6 million decline in our therapeutic solutions segment. When you look at the remaining 96% of our business it includes approximately $20 million of organic growth supplemented with approximately $28 million of inorganic growth, totaling almost $50 million of planned revenue growth in 2019. Now let me wrap up my prepared remarks by sharing with you four areas that we are focused on in 2019. First, it's about accelerating our growth. In this area I have shared with you our plans for organic and inorganic growth. Second, is the area of investing in our people where our approach is pretty straightforward. As a healthcare services company our people are our greatest asset. We are executing initiatives to support new and improved career trajectories for our clinicians and other professionals. Third is the area of patient care and service excellence where we will continue to aggressively pursue our clinical outcomes agenda in 2019. We are evaluating a research agenda in orthotics as a natural extension of our work in prosthetics. Fourth is the area of enhancing our use of technology where we have only begun to scratch the surface of leveraging technology to improve our efficiency. A critical step was the implementation of our EHR and integrated practice management system. At this time we believe that the procurement, inventory management, and shipping of goods nationally is a tremendous opportunity. We are now at the point where implementation of new financial and supply chain technology will provide sustainable benefits for years to come. In summary we believe that our focus areas and plans for growth are well aligned to drive long-term shareholder value and the outlook is encouraging. I believe that Hanger is the best position it has ever been to grow and reach its full potential. And with that I will ask Tom to go through the numbers.

[Thomas E. Kiraly:]

Good morning. As Vinit shared we are pleased we achieved revenue and adjusted EBITDA levels for 2018 that were consistent with the guidance we set last spring. The company's results reflect a solid underlying performance level from which we can grow in future years. Additionally as you can see from our cash flow statement and retain cash balances, we demonstrate significantly improved free cash flow characteristics in 2018. During my portion of the call I will first spend some time discussing our fourth quarter and annual results for 2018 and will then provide you with further color on our current outlook for 2019. Due to the seasonality inherent in our business the fourth quarter is typically our strongest quarter and 2018 was no exception. Our fourth quarter revenue was 284.9 million and excluding the $1.1 million effect of our adoption of ASC 606 during 2018, this was consistent with the revenue we reported for the fourth quarter of 2017. Revenue from our patient care segment in the quarter was 236.6 million which after taking into consideration the effects of ASC 606 was essentially the same as in the prior year quarter. For the year excluding the $4 million effect of ASC 606 on revenue on a pro forma basis, this segment produced 9.4 million in year-over-year revenue growth. In 2018 our patient care segment grew at the same clinic revenue at 1.3% or 0.9% on a day adjusted basis. While our plans are to ultimately demonstrate stronger total rates of growth, we were quite pleased with the underlying 3.3% rate of growth that we achieved in prosthetics. As Vinit discussed our de-emphasis of lower margin off the shelf orthotics and shoes dampened the overall growth rate of this business segment. For the year we achieved a disallowance rate of 4.3% which was reasonably consistent with the 4.2% rate which we reported in 2017. Perhaps more importantly our patient nonpayment rate which under the new revenue standard is recognized as a reduction to revenue was 0.4% during the course of the year. This compares favorably to a bad debt expense rate reported in 2017 of 1%. During the fourth quarter we were again pleased with the overall performance of our products and services segment. As has been the case in prior quarters during 2018, better than expected growth in our distribution business offset the anticipated revenue decline in therapeutic solutions enabling this segment to produce a stable level of revenue. Within our products and services segment, revenue we derived from the distribution of componentry grew by 1.6 million or 4.9% during the fourth quarter and by 7.3 million or 5.7% for the full year. This is well above the growth rate we anticipated and was driven primarily by the addition of new SKUs, new manufacturers, and new customers. Meanwhile revenue from therapeutic solutions provided within this segment declined by 1.7 million in the fourth quarter and by 4.7 million for the full year which reflected a smaller decrease than we had anticipated. For 2019 we currently believe that the rate of growth and distribution services will moderate and that we will continue to see a decline in revenue from therapeutic solutions that will be in about the $5 million to $7 million range. From an earnings perspective Hanger produced income from operations of 22.8 million during the fourth quarter and 59.6 million for the full year. These results were inherently burdened by 3.6 million in third party professional fees during the quarter and 12.5 million for the full year which we incurred in connection with our remediation of controlled weaknesses. We believe these expenses will continue to subside as we complete our internal controls remediation and currently estimate that there will be approximately 5.1 million during 2019. On adjusted EBITDA basis Hanger produced 40 million in the fourth quarter of 2018 and a 121 million for the full year. For the year adjusted EBITDA growth in our patient care segment of 2.9 million offset the 2 million decline in our products and services segment while costs associated with our corporate segment were consistent with the prior year. This growth in patient care earnings enabled the company to produce slightly higher consolidated adjusted EBITDA for the year as compared with 2017. From a cash flow perspective during the fourth quarter Hanger produced 41.4 million in operating cash flow. Within this amount we benefited from the favorable effect of approximately 7 million in accounts payable timing associated with the fact that the last day of the year fell on the weekday immediately prior to our weekly disbursement of manufacture payments. From a receivable perspective our DSO was 46 days which was consistent with the level at December 31, 2017. Due primarily to the strong level of operating cash flow and the $7 million accounts payable timing benefit, our cash and cash equivalents grew by 34.1 million to 95.1 million. When combined with our undrawn revolver capacity of 94.1 million, Hanger had 189.2 million in liquidity as of December 31, 2018. After considering the company's retained cash balances we're pleased that our net indebtedness fell to 425 million at the year's end. This reflected a net leverage of just over 3.5 times and significantly underscores the company's overall improvement and financial strength during 2018. While we are pleased with this achievement it's nevertheless important to remember that the fourth quarter is our peak quarter for both earnings and cash flow. In the first quarter we experienced a seasonally low performance and normally consumed cash. Additionally in the first quarter of 2019 as is the case each year, we have dispersed approximately 36 million for the payment of annual bonus and the employer match of our 401K plans. Additionally in the first quarter we utilized 28.5 million in cash in connection with an O&P acquisition. These items plus the accounts payable timing consideration I mentioned earlier should put our March 31st cash balance back down into the low $20 million range. The seasonal swing in cash flow will have the effect of moving net leverage temporarily back up to approximately four times. From there we anticipate that our operating cash flow will resume the same natural quarterly seasonality that we saw in 2018. The resulting growth in our cash and liquidity balances will be offset by the amount of any further O&P acquisitions that we consummate during 2019. Our intention is to manage net leverage down into the 3.5 times range and to provide adequate free cash flow to support a normal level of O&P acquisitions. Our objective is to both demonstrate a prudent approach to our management of debt levels while supporting what we see to be a valuable element of the company's plans to expand the access of our patients through care. Turning to investing activities, we completed 2018 at the lower end of our anticipated capital expenditure range with a total of 28.8 million inclusive of both investments in property, plant, and equipment as well as purchases of therapeutic program equipment. In 2019 we currently estimate we will expend approximately 35 million in capital expenditures. This slight step up from 2018 relates primarily to increased expenditures for lease hold build out in our clinics as well as investments related to the refresh of our information technology infrastructure. Now I'll finish my portion of the call with some additional commentary relating to our outlook for 2019. As we disclosed in the press release we currently anticipate that 2019 net revenue will be in the range of 1.075 billion to 1.105 billion and that adjusted EBITDA will be in the range of 121 million to 126 million. This guidance does include end year revenue from acquisitions closed late in the fourth quarter of 2018 and during the first quarter of 2019 which are estimated to contribute approximately 28 million of net revenue during the year. In bridging our earnings guidance for the year from the results of 2018 there are several key factors that should be taken into consideration. First while our same clinic growth coupled with the beneficial effect of acquisitions should provide favorable earnings and margin expansion in that business segment, we believe that earnings growth will be offset to a certain degree by a decrease in the earnings of our products and services segment associated primarily with the decline in our therapeutic solutions revenue and the moderation of our growth rates and distribution services. Overall our increased margin in patient care will likely be offset by decreased margin in our products and services segment resulting in a combined contribution margin that is essentially the same as we produced in 2018. Additionally although we are incorporating revenue from closed acquisitions please bear in mind that we do expect to incur integration costs and are also planning increases in our mergers and acquisitions, departmental diligence, and integration staffing teams that will offset a portion of the related earnings from these acquisitions. Our guidance does not incorporate any revenue or earnings from acquisitions that we may close during the balance of the year. Additionally as discussed in the third quarter conference call, we do expect to have a slight adverse effect on adjusted EBITDA due to the implementation of the new lease accounting standard ASC 842 which we have incorporated into our guidance. This could be in the $1 million to $2 million range for the year. As you consider our quarterly earnings please bear in mind that our first quarter 2018 adjusted EBITDA results reflect a strong growth over the first quarter of 2017. Due primarily to favorable health benefit expense in that quarter adjusted EBITDA grew by 1.9 million which was strong relative to the growth of other quarters during the past year. Given this strong performance in the first quarter of last year, we currently believe we will have a somewhat more difficult comparison in the first quarter of this year. Finally from a technology perspective as discussed in prior calls, we incurred approximately 4.4 million in expense associated with the implementation of our new patient management and electronic health records system during 2018. As Vinit discussed we are now essentially finished with that implementation. As we have stated in past calls we anticipate continuing to incur a similar annual amount of implementation expenses in connection with the planning and implementation of new financial and supply chain systems during 2019 and into 2020 and 2021. The cost for these new systems initiatives and the completion of the electronic health records system approximately $4.5 million and are incorporated into our guidance for 2019. With that I'll turn the call back over to the operator to open it up for any questions that you may have.

[Operator:]

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

[Brian Tanquilut:]

Hey, good morning guys. Congrats on a good year. First question for you guys, Vinit as I think about the margin performance and you highlighted how much you've expanded margins from 2016 to 2018 and as I look at your guidance it appears that you still are expecting some margin expansion in the core business. So if you don't mind just walking us through where you think the remaining margin opportunities are and how much more you can squeeze out of the clinic business? Thanks.

[Thomas E. Kiraly:]

Hey Brian, this is Tom. So when you look at our 2019 guidance, a lot of the margin expansion is coming from the flow through on that organic revenue growth that Vinit discussed and that we have in our guidance. Really from a cost structure standpoint I don't know that we see a lot of near term opportunity to expand the margins beyond what we get from incremental growth. We do have some good capacity in the clinics which we think could produce further margin expansion in 2020 without a lot of commensurate increase in staffing, and then of course over the longer run a lot of our investment in technology is aimed at things like supply chain which could indirectly help us also with margin. So, in short we're focused on continuing to go ahead and develop a profile that can show expanded margin. But I don't think there's any low hanging fruit.

[Brian Tanquilut:]

Got it, appreciate it. And then I guess a follow-up to that Tom, as I think about organic growth you know 3%ish growth in prosthetics so is 2019 the year when you kind of pull back to the deemphasizing off the shelf orthotics and if that's the case shouldn't we see some acceleration in organic growth overall in the clinic business and I guess broader question is, should we expect you to grow at or above the industry growth rate this year overall if that is the case?

[Vinit K. Asar:]

Yeah, let me take the first part of that question Brian, this is Vinit. Look in terms of the organic growth we'll have a continued focus on the prosthetic side of the business and our plans call for above industry growth on prosthetics. And then on the orthotics side we have put some plans in place in the latter part of 2018 on the custom orthotics piece of it. And we are expecting to see that tick up as well to close to EBITDA market growth rates or maybe even slightly higher. For the rest of it which is the off the shelf orthotics and the shoes and inserts, we don't plan on emphasizing that anytime soon but it's a part of our portfolio that is needed because of referral sources and our patients do want that. So we'll continue to participate in that part of the product portfolio. In the next couple of years what we're looking to do is figuring out more efficient ways of delivering that part of the portfolio and we haven't gotten there yet.

[Brian Tanquilut:]

Got it and then last question for me, as I think about M&A three deals, pretty good sized, how should we think about your pipeline and then also your appetite and capacity for more deals as we think about the rest of the year and even into next year?

[Vinit K. Asar:]

Sure, look in terms of the pipeline, you know, the pipeline is very strong. They are today based on where we are as a company in the differentiators we put out there in speaking to various independent providers. There is a desire for a lot of these independents to join Hanger because of the changes we've made and the infrastructure we have put in to make life easier for the clinicians. But the pipeline is strong. At this point we can't really guide to what to expect for the rest of 2019 in terms of the sizes and the number of deals we do. Only because you can appreciate that first of all we learn a lot through the due diligence process in the conversations and some deals can go forward and some don't. And the negotiations also take a while. So at this point we're not in a position to guide as to what to expect for the remainder of the year. But we'll keep you updated through the year through the quarterly calls. And Tom you want to touch on the appetite for doing these acquisitions.

[Thomas E. Kiraly:]

Yeah, I mean I think as we've talked about they are economically attractive from a purchase multiple standpoint and they really do help enhance the access the patients have to care. And so they're a very integral part of the growth strategy that the company as Vinit described both organic and inorganic.

[Vinit K. Asar:]

And we have the liquidity as Tom mentioned in his prepared remarks.

[Brian Tanquilut:]

Got you, alright. Thanks guys.

[Vinit K. Asar:]

Thanks Brian.

[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. I just want to follow-up on one of Brian's earlier questions on the margin. I think the midpoint of your revenue guidance implies I think close to 2% organic growth in the patient center. But I think the high end of the guidance would imply maybe more closer to 3%. So I'm trying to think about if you can grow well above where the industry is growing and what kind of leverage is there in the business for growing 100 basis points above where the industry is and kind of how does that translate to margin expansion or EBITDA or EPS growth if I'm thinking 3% revenue growth, is it high single-digit kind of EBITDA EPS growth, any color you can shed there?

[Thomas E. Kiraly:]

Well, I mean I don't want to go and give a specific guidance of 2019 as to the margin contribution of patient care. But needless to say as Vinit described in his script we increased the margin from 2016 to 2018 by 310 basis points. So it went from 14.5 up to 17.6 and some of that was cost, some of that was the disallowance effect the company had, and some of that was sort of this de-emphasis of the lower margin off the shelf was helping us. So you can see that there is an ability to scale margin. And in my remarks I described that we are anticipating an increase in margin for a variety of reasons but primarily the organic growth in 2019, when you start talking about the 3% growth rate that could push the margin up meaningfully, just given the dynamics of the company on a marginal dollar basis having really a column which is about 30% and maybe about a 10% rate of associated compensatory reward for growth. So you can back into and see that there's quite a bit of expansion that could come for the company all things created equal, the company is able to achieve that higher end of the range.

[Dana Hambly:]

Okay, and Tom or Vinit on the acquisitions, I know they're not supposed to add much to profitability this year, what would you consider a general timeframe to when those would -- well, first of all do you expect they'll get to your company clinic margins and kind of over what time frame should we expect that to happen?

[Vinit K. Asar:]

Yeah Dana, so the way we look at these acquisitions typically from our perspective it should take about a year for those acquisitions to get up to the level of our company margins. So that's generally when you should start seeing the flow through of these acquisitions, incremental flow through.

[Dana Hambly:]

Okay, are you seeing a dysynergies kind of in the early months as you onboard them?

[Thomas E. Kiraly:]

Yeah, well there is in the sense that there is some distraction with the [indiscernible] conversion, we have to bring people in, we have to reroute the revenue cycle functions. There's a supply chain integration that we have to do so that they start procuring through our supply chain organization, that could be very disruptive. So there is some of that integration friction that occurs and then of course the associated cost, incremental cost of us doing the integration.

[Dana Hambly:]

Alright, and then last one for me, Vinit you talked in your prepared comments about some of the key stakeholders and the clinical buying and the MAAT studies, I wonder if you could expand a little bit on that and then also I know you talked last quarter about some patient engagement activities maybe talk about the momentum you're seeing there?

[Vinit K. Asar:]

Yeah, the conversations we had in the last I'm going to say six to eight months include first of all the independent O&P providers that we speak to in terms of acquisitions. But they also include a lot of the large healthcare institutions and there's just a growing interest in the clinical data that we are generating through the math studies and others and growing interest by very marquee healthcare institutions, their surgical staff that are interested in partnering with us. So that's where a lot of that comment is coming from. But in addition to that even our patients are beginning to see and appreciate what we're trying to do for the patient community. So we continue to do a lot of patient events, we recently had our education fair in February where we invited a whole host of patients that partnered with us. So, I am not just sharing their stories but also helping educate our clinicians. So, there is just overall a lot of partnerships and collaborations that we're working on.

[Dana Hambly:]

Thanks very much and congratulations.

[Vinit K. Asar:]

Thanks Dana.

[Operator:]

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

[Lawrence Solow:]

Great, thanks. Good morning guys. Maybe just a quick follow-up on Brian and Dana's question, just on the margins and maybe just asked a different way, in patient care I think historically your incremental contribution margin was on an EBITDA basis has been sort of going back maybe a couple years ago it was sort of in the 60% to 65% estimated range, is it fair to say we're sort of back to that level?

[Thomas E. Kiraly:]

Yeah, I think, I might be a little bit more conservative of that, say kind of 55 to 60 but I do think that -- I do think that those economics are there.

[Lawrence Solow:]

Okay, great. And then just on the acquisitions it looks like you spent about 2 million in the fourth quarter, so in December I would imagine a little bigger piece in Q1, can you just help us and see if you can give us a total what you paid for the 28 million in revenue or if there is an EBITDA contribution on a trailing basis that you may not get at all this year, but just give us a little color on what you paid and what the environment is on pricing?

[Thomas E. Kiraly:]

So, first of all on the acquisitions, in addition to those cash advance you mentioned we did have a slight amount of seller note additions and so we did finance a small portion of the acquisitions with seller notes. So the fourth quarter number was just over 3 million, I think 3.1 million and the first quarter number about 33.2 million including the seller notes. You know we're not really for a variety of reasons interested in sort of sharing too many specifics on the actual earnings multiples or the EBITDA from the acquisitions. And that's really more from a standpoint of just trying to make sure that we're responsible in terms of how we share that information broadly. But I think you can see that end year revenues of 28 are certainly an attractive revenue level given the capital outlay.

[Lawrence Solow:]

Right, looks like you paid about with over one times revenue which is sort of I think relatively in line with historically what you guys were planning a few years back at least, right if I'm not mistaken?

[Thomas E. Kiraly:]

Yeah, there is some annualization that kicks in on the revenue that you have to take into account because of the timing of the of the first quarter acquisitions.

[Lawrence Solow:]

Right. Okay, and then just how about just a little bit of the investment you're making and sort of the infrastructure and whatnot, I don’t know if you can quantify that but it sounds like that will -- that may continue a little bit as we go out to 2021. It sounds like there's a bigger piece of that this year which hopefully won't continue or need to be required even though you are continuing to make acquisitions as we look out?

[Thomas E. Kiraly:]

That's true to a certain extent although I wouldn't go as far as saying that I would still characterize all of this as maintenance CAPEX and not one time CAPEX as you think about it only because we don't have good visibility into the 2020 level yet. The step up really does exist in this whole idea of our technology refresh which goes hand in hand with some of the things that we're expensing through our operations as we talked about in terms of the supply chain initiatives and some of the financial systems initiatives. The bulk of the step up although we are stepping up leasehold work on the clinics as well.

[Lawrence Solow:]

Okay, and then jut on the sort of the prosthetics obviously sounds like you expect it to grow some more, I know you guard per end market but it sounds like a similar range. Just on the orthotics piece I know Brian asked the question too but are you guys pretty much downward sort of the heavy lifting on the -- in other words have we seen a lot of the negative impact from the from the less focus on the low end products? And then secondly you said orthotics is 46%, could just give us an idea how much of that is custom versus sort of the lower margin stuff?

[Vinit K. Asar:]

Let me talk about the heavy lifting piece first. I am assuming you're referring to the headwinds on the orthotics [Multiple Speakers]. I don't expect that to change substantially in 2019. I think we'll still see some of that. Really what I would expect to see is the custom orthotics piece get stronger in 2019 as well as the continued focus on the prosthetic side.

[Thomas E. Kiraly:]

Right and then in terms of, just to get a sense of the scale as we've talked about, when you look at what we call sort of the custom categories which includes some of the custom fit things we do, that's in the order of 230 million to 240 million of approximately 400 million of overall orthotics revenue.

[Lawrence Solow:]

Okay, so it's actually more than half of it. Okay, so it's a pretty good piece. Okay. Great, last question, just you guys have -- you refinanced before you got your listing back and I know you put up a few consistent quarters, is that an opportunity maybe for refinancing of your debt sometime this year?

[Thomas E. Kiraly:]

There is, I mean obviously we very much want the debt markets to also see the recovery that we see and have the respect for the company's underlying cash flow and leverage profile. But as that unfolds and we get to a point where we see an opportunity to execute on that we are being mindful of our capital needs for M&A. We do think that an opportunity might exist, I can't really tell you the timing on that but it's certainly something that we're evaluating.

[Lawrence Solow:]

Great, okay, excellent. Thank you very much.

[Operator:]

Thank you. [Operator Instructions]. There are no further questions at this time. I would like to turn the call back over to Mr. Asar for any closing remarks.

[Vinit K. Asar:]

Great, well thanks very much for joining the call today. We really appreciate the continued interest and the support in our story. And we look forward to speaking with you when we report Q1 earnings. So 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.