Hanger, Austin, Texas, announced its first quarter (1Q) 2014 results, for the period ended March 31, 2014, on May 5. Net sales for 1Q 2014 were $235.6 million, a $6.2 million, or 2.7 percent, increase from net sales of $229.4 million for 1Q 2013. Adjusted diluted earnings per share (EPS), which excludes nonrecurring tax costs, costs related to acquisitions and the implementation of the company’s new clinic management system, were $0.19 for 1Q 2014, compared to adjusted diluted EPS of $0.27 for 1Q 2013. Diluted EPS were $0.17 for 1Q 2014 compared to $0.27 for the same period of 2013.
- The $6.2 million, or 2.7 percent, net sales increase was the result of a $6.5 million, or 3.5 percent increase in the patient care segment, and a $300,000 decrease in the products and services segment. The $6.5 million increase in patient care segment sales comprised a $10 million increase in sales from acquisitions, offset by a $3.5 million, or 1.8 percent, decline in same center sales. The decline in same center sales was driven by the impact of severe weather in the eastern and central parts of the United States.
- Income from operations for 1Q 2014 was $16 million, compared to $22.7 million in the prior year. Adjusted income from operations for the first quarter, which excludes nonrecurring tax costs, costs related to acquisitions and the implementation of the company’s new clinic management system, was $16.8 million, compared to $23.2 million in the prior year. The decline in adjusted income from operations was driven principally by the weather-related decline in same center sales in the patient care segment and costs related to the delayed filing of the company’s 10-K.
- Hanger reported a $10 million outflow of cash from operations for 1Q 2014, compared to a $2.2 million cash inflow for 1Q 2013. The $12.2 million reduction in operating cash flow was driven by lower operating income and increased working capital requirements.
- As of March 31, 2014, Hanger had $140 million in total liquidity, including $55.6 million of cash and $84.4 million available under its revolving credit facility, net of approximately $112 million of borrowings and $3.6 million in letters of credit. Hanger’s leverage ratio, as defined in its bank credit facilities, was 2.99 times at 1Q 2014.
“First quarter proved to be challenging for us on a variety of fronts, but our outlook on the core business remains very positive,” said Vinit Asar, president and CEO of Hanger. “Like many companies, the harsh winter weather throughout the first quarter significantly impacted our sales and earnings. This, coupled with the reimbursement environment, will put some pressure on our top line this year, but we still anticipate healthy same center sales growth of between 2 percent and 4 percent for the full year. We are also making changes to meet head-on the challenges we faced in connection the filing of our 10-K this year, with key investments aimed at strengthening our processes and control environment.”
- Hanger lowered its 2014 full-year adjusted diluted EPS guidance to a range of between $2.01 and $2.11, which represents growth of between 3.1 percent and 8.2 percent over the prior year. The company said it expects to grow same center sales between 3 percent and 5 percent for the remainder of 2014.
- Taking into account the impact of first quarter 2014 results, Hanger said it has lowered its projected full-year 2014 same center sales growth to between 2 percent and 4 percent. The reduction in earnings projections in part reflects lower same center sales in the patient care segment combined with additional investments the company is making in its processes and control environment.
- Hanger lowered 2014 full-year net sales guidance to a range of between $1.1 and $1.12 billion. Hanger said expectation of lower same center sales growth will be partially offset by accelerated timing of acquisitions, which will drive incremental revenues in the remainder of the year, but will not provide significant earnings over that period due to their initial integration costs.
- Reflecting the lower than expected 1Q results and the reimbursement environment, Hanger said it adjusted its expectation of 2014 cash flow from operations to a range of between $80 and $90 million.
- For 2014, Hanger said it continues to anticipate acquiring O&P operations with annualized net sales of between $35 and $45 million and plans to invest between $40 and $50 million in capital additions during the year. Hanger’s previous full-year 2014 guidance issued on February 12 was to achieve revenues of $1.11 to $1.13 billion, adjusted diluted EPS of $2.10 and $2.20, patient care same center sales of 3 percent to 5 percent, and cash flow from operations of $90 to $100 million.