Hanger, Austin, Texas, announced net sales of $278.2 million for the quarter ended December 31, 2013, an $8.6 million increase from net sales of $269.6 million for the fourth quarter (4Q) of 2012. Adjusted diluted earnings per share (EPS), which excludes nonrecurring tax costs, costs related to acquisitions, and costs related to the implementation of the company’s new clinic management system, Janus, were $0.54 for 4Q 2013 and equal to the 4Q 2012 adjusted diluted EPS.
According to the company, the 4Q net sales increase of $8.6 million was the result of an $11.1 million increase in the patient care segment and a $2.5 million decline in the products and services segment. The $11.1 million increase in patient care segment sales comprised a $2.8 million increase in same center sales, with the remaining $8.3 million increase driven by acquisitions. The reclassification of certain accounts receivable write-offs and reserves previously classified as bad debts and subsequently classified as a reduction in net sales, first reported in the third quarter (3Q) of 2013, resulted in the same center sales growth to be lower than it would have been under the previous classification. The $2.5 million decline in products and services segment sales was principally the result of the impact on the company’s distribution business of the acquisitions of independent O&P companies made by the patient care segment in 2012 and 2013, and a decline in demand for more expensive prosthetic devices, such as microprocessor-controlled knees, from independent O&P practices due to pressure they are facing from the Centers for Medicare & Medicaid (CMS) audits.
Income from operations for 4Q 2013 was $34.6 million, compared to $36.5 million in the prior year. Adjusted income from operations for 4Q 2013, which excludes nonrecurring tax costs, costs related to acquisitions, and costs related to the implementation of Janus, was $35.3 million, compared to $37.4 million in the prior year. Income from operations declined principally due to increased cost of materials and accounts receivable reserves related to operational issues experienced at a small non-clinic unit within the company’s patient care segment.
Net sales for the year ended December 31, 2013, increased $720 million to $1,046.4 million from $974.4 million for year-end (YE) 2012. The sales increase was driven by an $18.8 million increase in same center sales in the patient care segment, a $51.1 million increase from acquired entities, and a $2.1 million increase in sales in the products and services segment. As with the 4Q results, the impact of the reclassification announced in 3Q 2013 had an adverse impact on the calculation of same center sales growth for the year.
During 2013, Hanger said it acquired O&P operations totaling about $20 million in annualized sales. Adjusted diluted EPS, which excludes nonrecurring tax benefits, costs related to acquisitions and the implementation of Janus, and debt issuance cost associated with the June 2013 refinancing of the company’s bank credit facilities, increased to $1.95 for the full-year 2013 compared to adjusted diluted EPS of $1.80 for the full-year 2012.
The company generated $88.3 million in cash flow from operations for the year ended December 31, 2013, compared to $81.3 million in 2012. As of December 31, 2013, Hanger had $181.3 million in total liquidity, including $9.9 million of cash and $171.4 million available under its revolving credit facility, net of about $25 million of borrowings and $3.6 million in letters of credit. The company’s leverage ratio, as defined in its credit facilities, was 2.5 times at YE 2013.
“As we reflect on 2013, we view it as both successful and challenging,” said Vinit Asar, president and CEO of Hanger. “We successfully grew adjusted diluted EPS by 8 percent while weathering sequestration, an increase in the number of Medicare audits that are affecting many healthcare providers, and operational issues in one of our businesses. Entering 2014 our core business remains healthy, and we are making a number of investments in our back-office which we believe will improve our future operations.”
The company said it expects 2014 revenues to be between $1.11 and $1.13 billion and adjusted diluted EPS to be between $2.10 and $2.20; the earnings growth includes an $11 million investment the company is making in its back-office operations, including centralization of its billing and processing activities and improvements in its finance, accounting, and information technology functions. Hanger also said it expects to generate cash flow from operations of between $90 and $100 million, to invest between $40 and $50 million in capital additions during the year, and to close acquisitions of $35 to $45 million of O&P annualized revenue.
