Hanger, Austin, Texas, announced net sales of $273.7 million for the quarter ended June 30, 2013, an increase of $22 million, or 8.7 percent, from $251.7 million for the second quarter (2Q) of 2012. Diluted earnings per share (EPS) were $0.40 for 2Q 2013 compared to $0.50 for 2Q 2012. Adjusted diluted EPS, which excludes costs related to acquisitions, implementation of a new clinic management system, and debt issuance cost associated with the June 2013 refinancing of bank credit facilities, increased 2 percent to $0.52 for 2Q 2013 from $0.51 for 2Q 2012.
“We are pleased with our overall sales performance in the quarter despite a difficult macro environment, but are not satisfied with our second quarter earnings,” said Vinit K. Asar, president and CEO of Hanger. “However, higher costs in the quarter related to increased Recovery Audit Contractor (RAC) audits, sequestration, and employee benefits had a negative impact on operating margin of approximately 100 basis points compared to Q2 last year.”
According to a company press release, the 2Q net sales increase of $22 million was the result of a $23.1 million increase in the patient care segment, partially offset by a $1.1 million decrease in the products and services segment. The $23.1 million increase in patient care segment sales comprised an $8.1 million increase in same-center sales, with the remaining $15 million increase driven primarily by acquisitions closed in the prior year.
The decline in the products and services segment sales was a result of lower sales from Hanger’s distribution business, SPS, headquartered in Alpharetta, Georgia, partially offset by a mid-single-digit increase in sales from its rehabilitative solutions business, Accelerated Care Plus (ACP), based in Reno, Nevada. The decline in SPS’ sales was principally the result of the impact on SPS’ customer base due to acquisitions of independent O&P companies made by the patient care segment in 2012, and a decline in demand for higher-priced prosthetic devices, such as microprocessor-controlled knees (MPKs), from independent O&P practices due to pressure they are facing from RAC audits.
Income from operations for the quarter ended June 30, 2013, was $36.6 million, compared to $35.7 million in the prior year. Adjusted income from operations for 2Q 2013, which excludes costs related to acquisitions and the implementation of Hanger’s new clinic management system, was $37 million, compared to $36.1 million in the prior year. According to Hanger, the principal reasons for the decrease in operating margins were the impact of sequestration, increased employee benefit costs, and the impact of RAC audits on its patient care segment.
Net sales for the six months ended June 30, 2013, increased $37.4 million, or 8 percent, to $507.3 million from $469.9 million in 2012. The sales increase was driven by a $10.8 million increase in same-center sales in the patient care segment and a $28.8 million increase from acquired entities, which were offset by a $2.4 million decrease in sales in the products and services segment. Diluted EPS were $0.67 for the first six months of 2013 compared to $0.75 for the same period of 2012. Adjusted diluted EPS, which excludes costs related to acquisitions, the implementation of Hanger’s new clinic management system, and debt issuance cost associated with the June 2013 refinancing of the company’s bank credit facilities, increased 5 percent to $0.80 for the first six months of 2013 compared to adjusted diluted EPS of $0.76 for the first six months of 2012.
The company’s cash flow from operations decreased to $26.7 million for the six months ended June 30, 2013 compared to a $27 million for the same period in 2012. As of June 30, 2013, Hanger had $150.4 million in total liquidity, including $5.8 million of cash and $144.6 million available under its revolving credit facility, net of approximately $55 million of borrowings and $400,000 in letters of credit. The leverage ratio, as defined in its credit facilities, remained steady at 2.8.
For 2013, Hanger said it expects revenues of between $1.06 and $1.08 billion, which includes 3-5 percent same-center sales growth in its patient care segment, and flat sales in its products and services segment. Hanger also reports it has increased its adjusted diluted EPS guidance to a range of $2.07 to $2.13, and it expects to generate cash flow from operations of between $80 million and $100 million in 2013 and to invest $40 to $50 million in capital additions. Hanger said it will continue its acquisition program with a goal of closing acquisitions that total approximately $20 million in annualized revenues in 2013.