Q3 2020 Hanger Inc Earnings Call

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Greetings and welcome to hangers third quarter of 2020 earnings call.

All participants will be and listen only mode should you need assistance places to go a conference specialist by persons dark he followed by zero.

As a reminder, this conference is being recorded.

Today, we will have prepared remarks, followed by Q&A period instructions for your questions and the answers will be provided after the formal presentation.

All my pleasure to introduce your host such Frank Vice President Treasury.

And Investor Relations.

Sure you may begin your carpets.

Good morning. Thank you welcome to Hangers third quarter 2020 earnings conference call with US today I've been an officer hangars, President and Chief Executive Officer, Tomsk, Raleigh, Executive Vice President and Chief Financial Officer.

Some of the information discussed today will include forward looking statements and the meeting of the private Securities Litigation Reform Act of 1995.

These statements are subject to risks and uncertainties that could cause hangers actual results to materially differ from those we discussed today. Those risks include among others matters. We have identified in the forward looking statements portion of our latest earnings release, and then a filings with yes, you see hangar just claim.

<unk> any obligation to update forward looking information discuss on this call and now like to end the call over to that.

Thanks, that's good morning, and thank you all for joining hangers third quarter Twenty-twenty earnings Conference call.

During the third quarter, our patient volumes demonstrated a continued recovery and combined with our cash preservation measures contribute it to a favorable earnings and cash flow performance. Despite the continuing pandemic.

In response to this positive trend along with our strengthen liquidity position and in order to enter 2021 with momentum we restored employee salaries and we'll come back furloughed employees as October I wanted to express my appreciation to hangers employees for the high quality of patient and customer care provided during these times and.

Also for enabling us to achieve the strong financial and operational position we are in today, though.

The better volume trends during Q3 resulted in a further narrowing of your over your revenue declines.

We acknowledge that while the ultimate length of the pandemic is not fully known especially given the current resurgence of infections, we're well positioned to meet the return of normalized volume and pick up where we left off on organic and acquired growth strategies.

Net revenue for the third quarter totaled $256.6 million, a decrease of 8% or $23 million compared to the same period of 2019.

Total adjusted EBITDA in the quarter was $27.9 million, which reflects a decrease of $4.8 million.

Tom would provide more details, but even as we had partially restored salaries during the third quarter. Our efforts on cost containment in capital preservation continued to insulate the company from the impact of Laura you're on your revenue.

In the patient care segment third quarter appointment volume declined 16% compared to 33 per cent in the second quarter, a meaningful improvement say.

Same clinic net revenue on a day adjusted basis declined 10.3%.

A marked improvement from the 18.7% decline reported in the second quarter.

A variety of factors, including the comfort ability and willingness of patients to seek O M. P care remains of primary gating factor in the pace of recovery.

Judging by the sequential uptick in patient appointment volumes during Q3 and the direct feedback we received through our net promoter score process. Our patients are getting increasingly comfortable with the safety protocols, we haven't place within our clinics.

Our overall net promoter score for patient care remains strong at 85.5, despite the challenging environment.

Excluding acquisitions are prosthetic business demonstrated a continued resilience declining only 8.9% compared to the same period last year generally in line with Q2 of 2021 orthotics demonstrated a pronounced sequential recovery declining by 11.8% in Q3 compared to.

34% in Q2 of 2020.

Customer thought X categories for spinal and cranial applications remains strong shoes, and inserts remain relatively depressed compared to other a thought of categories.

Patient care segment EBITA margins grew in the quarter boosted by strong collections, resulting in lured disallowed revenue and the previously stated impact of the personal cost actions.

Ah revenue cycled team continues to demonstrate success working with the Payor community to ensure we are generating above market results in cash collections. During these uncertain times.

Our products and services segment also perform better in the third quarter total segment net revenue declined 9.7% in the third quarter.

This is compared to a 24.7% decline in the second quarter.

We are pleased with the performance of the distribution business and its recovery through this year.

This is due in large part to Regina his leadership and extensive knowledge of the only industry.

Regina will expand this success with a cohesive strategy and a focus on growth leading the products and services segment.

Secondly, we welcomed Pete story to the position of Chief operating officer of hangar responsible for the patient care segment.

As a growth oriented leader Pete brings a wealth of healthcare industry experienced a hanger possessing deep relationships at medical systems across the United States.

To require an ear visit and were significantly less likely to experience a fall.

Our research team highlights the long term health outcome quality of life and cost benefits of earlier prosthesis intervention in lower limb amputation.

Men's traded challenges in stresses of running a local independent owned practice.

It is likely exacerbated the desire for some of these businesses to join hangar based on the relevant expertise and support that we bring to bear, allowing clinicians to focus on what they do best which is patient care.

So in summary, we are very pleased with the manner in which we have navigated what has been a year of unprecedented challenges.

We accomplished our near term goals, specifically preserving liquidity, thanks to the significant efforts and sacrifices of our employees.

Assistance from the cares act as well as an outstanding effort by our revenue cycle management and financial teams we.

We believe that we have placed hangar in a position of strength to navigate the post pandemic world and pick up on a strong growth trajectory as COVID-19 subsides in 2021. Thank.

Thank you for your time and interest in hangar now Tom will discuss the numbers in more detail Tom.

Thanks Bennett.

As a result demonstrate during the third quarter hangar continued to perform well despite the adverse business conditions caused by the co. Good 19 pandemic.

In April patient appointment volumes in this segment of gradually improved each month to a decline of 13% in September and an average decline of 16% for the full third quarter.

Is vintage shared improved orthotics volumes, where the key service area that contributed to the sequential increases in revenue from the second quarter.

Nevertheless, prosthetics continues to constitute an increasing portion of our revenue mix.

During the third quarter prosthetics accounted for 55.5% of our revenue in 2020 as compared with 54.8% at the same time last year.

Given the higher relative reimbursement rate a prosthetic devices.

Their increase as a percentage of our revenue contributed to a moderation of the patient appointment decline effect on a revenue.

OEM hours and associated payroll taxes.

We also saved an approximate $5 million from reductions in travel professional fees advertising bad debt and other expenses.

As we discussed in our second quarter financial filing and conference call. When considering these savings it is important to recognize that they are temporary in nature.

Our multi quarter plan for addressing the COVID-19 pandemic was designed to enable the company to build the financial resources to withstand an extended pandemic.

And to preserve the hangar team and its capacity to see and treat patients in the coming year.

I've done a tremendous job progressing this critical agenda, despite the distraction and pressures caused by the pandemic.

Now I'll provide you with some further discussion regarding our cash flow.

During the past three months through favorable operating results in working capital actions, we were able to generate strong operating cash flows and accumulate further capital resources.

Are operating cash flow was $45.2 million in the quarter and grew to a level of $125.2 million for the year to date.

This reflected an increase of $105.3 million for the year to date as we produced 19.9 million of operating cash flow and the first nine months of 2019.

0.4 times trailing 12 months adjusted EBITDA, despite the adverse effects of the pandemic.

Now I'll provide you with some brief comments regarding our trends as we close out the current year and enter 2021.

While we did continue to benefit from a gradual sequential increase in patient appointments in the third quarter.

We would encourage a cautious near term view on volume trends due to the recent significant increases and infection rates.

While we cannot be certain as to how these increases will affect the behaviors of our patients.

Our belief is that it would be best to remain careful and assuming further improvement in patient appointments for the time being.

Yeah, I think I think that a number of elements that you shared are on point, but just to clarify a bit. So yeah on the expense side. We do think an increase in cost structure $11 million to $14 million on the revenue side, it's just very difficult to predict.

We are concerned about the increase in infections and the fact that that may cause the recovery to stay pretty much flat with where Q3 was which would mean that Q4 was not at all be comparable to last year's Q4. When you go to next year. It's at this point, we're somewhat more.

Yeah.

Positive in our view, we do think we're seeing a big surge here in the winter.

Covidien it could have an additional effect on the business in the near term.

But we'd like to believe that the company is in a good position to.

Benefit as we go into 2021 in the country moves more to.

Recovery from this this pirates.

And then I guess the follow up to that Tom.

In past quarters that we've talked about this.

Guys felt confident that 2021 would look a lot like what your pre Cove in 2020 outlook would have been right. So do you still believe that that's the case.

Hey, Brian This is Bennett, yes, they do.

Hey, Brian we do we do believe that's the case because.

If you think back when we began 2020, we had all the pieces in place we had the strategy set we had that people said, we were feeling pretty positive about the momentum coming into 2020, and then Colby. It hit so you know as this pandemic subsides, we think will pretty much pick up where we left off.

In terms of that growth trajectory because all those pieces are in place and we're just stronger today from a liquidity perspective, so it helps out.

Then just the final.

Liquidity perspective, right. So it sounds like you are.

Back into considering acquisition so I.

<unk> industry I mean, it seems like you guys I've seen some recovery.

How do you think things stand in terms of you gaining market share and then investors have been focused on some of the data points. We're hearing out of the manufacturers. So I guess, if I may ask how do you think.

The industries numbers or maybe some of the manufacturers number spicy worse or why wouldn't they.

Is it a sign of market share gains in.

Just any kind of differentiation that hanger has at this point.

Sure Yeah, I think it's two different pieces, so when a manufacturer reports their numbers.

It's a medical device business, they're reporting on so they could be losing market share gaining market share against their competitors in the manufacturing industry. When we report our numbers. This is about the health care services industry and the provision of care that we're providing.

From where we sit during the last six to nine months of this this pandemic period.

Is there any hesitation said or is there any ability to yeah be nimble on that and maybe perhaps unwind a little bit again, if if need be.

Yeah.

Question.

Education in the actions if we've taken so far clearly they were watching to see what happens as a result of this this most current resurgence in infections. If you think back.

A large part of our volumes were affected in the the April may timeframe March April may timeframe, primarily because of the shelter in place orders and the shutdowns that's that affected our our volumes more than the fact that there are infections in place so.

We're watching that as long as there's no large shelter and places are shutdowns we.

Despite.

The difficult environment. The skilled nursing facilities are in our team is really enhance the value proposition they have been hosting webinars for their customers enhance some of the product offering. So we feel that they've been pretty stable compared to what the skilled nursing facilities have been seeing we know there is a.

A drop in census, maybe of a temporary in nature for the next quarter or two but I think that therapeutic solutions business has been more stable than perhaps the rest of the industry.

From a from a volume perspective.

Yeah.

Determine which are the assets are which are the teams that we want to bring in versus not.

Got it great. Thanks, I appreciate the call.

Thanks, Larry.

Again, if you have a question please press star than one.

Ladies and gentlemen, this concludes our question and answer session and Best concludes today's call. Thank you for joining hangers third quarter 2020 earnings Conference call you may now disconnect.

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