Q1 2021 Hanger Inc Earnings Call
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The private Securities 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 and Ah for.
Billings with the SEC hanger disclaims any obligation to update for looking information discussed on the call and now it's him call over to visit.
Thanks said good morning, and thank you for joining hangers first quarter of 2021 earnings call. We're pleased that the year is off to an encouraging start our team's nationwide continue to do an excellent job executing on our business plan.
Hanger return to growth in the first quarter for your for both revenue and earnings for the first time since the onset of COVID-19.
We successfully overcame a number of challenges during the quarter, including prolonged severe weather conditions in February as well as the effective for post holiday COVID-19 Serge.
We grew revenue and achieved adjusted EBITDA ahead of our expectations, primarily due to favourable disallowances and cost management.
Digested EBIT cash flow also benefited from solid collection trends in both of our business segments our.
Our ability to execute in the current environment raises our confidence for the long term.
That said COVID-19 remains a wildcard and certainly figures under the thinking behind maintaining our outlook. Despite the earnings upside this quarter.
We view vaccination rates tackling new variance and continued public health measures as critical to the return of normal business conditions.
Reviewing our consolidated first quarter results net revenue total 237 $5 million growing one 6% compared to the same period of 2020.
Just an EBITDA was $13.5 million compared to five 3 million in the prior year period.
Looking at performance by business segment patient care showed encouraging volume trends, particularly in the latter part of the quarter as the post holiday infection search faded and most of the country.
Hanger patient appointment levels are key leading business indicator for us rose to 97% of the same period last year.
This reflects an improvement from the 88% appointment level experienced in the fourth quarter of 2020.
In addition, we have reopened all patient care clinics that were temporarily closed returning our operations to normal staffing levels, reflecting the continued improvement in demand for our services.
So pleased with our results, particularly in light of some of the transitory issues that impacted the business.
Net revenues for this segment declined for 1% in the first quarter compared to the prior year Ah sequential improvement over the past few quarters.
In contrast, we delivered adjusted EBITDA year over year growth in the segment of $1.8 million.
This marks the second consecutive adjusted EBITDA growth quarter for products and services.
Hangars OSP distribution business declined in revenue by $1 million in the quarter. However, there were two fewer operating days in the first quarter of 2021 and as a result, we estimate revenues would've been flat after normalizing for operating days.
That said underlying these results as an OSP distribution business that continues to be an outstanding ambassador for the hanger name and which provides the most optionality to clinicians across the industry and how they practice OSP.
We also continue to boast additions to our product offerings and are seeing increasingly as the highly reliable differentiated and value added partner in the OSP supply chain to the rest of the OSP providers.
I am pleased with the continued diversification of our client and vendor portfolio as it strengthens the future for our distribution business.
Finally, hanger therapeutic solutions business continues to navigate the challenging COVID-19 effected sniff environment well.
Revenue declined by less than $1 million in the quarter, while skilled nursing facilities remained challenged on multiple fronts the business as well positioned to assist these providers with rehabilitating patients faster through clinically robust protocols and specialized equipment.
Entering what we anticipate will be a year of growth I will now turn to a few accomplishments and operational items of note from the first quarter.
We held our first ever Hanger live event in a virtual format and welcomed the entirety of for 4900 employees to join US for two days of educational sessions on state of the art clinical care inspiring patient stories keynotes and leadership seminars.
This event also set the tone, we've established around diversity and inclusion.
Unrelated note, we recently published Hanger second annual ESG report.
The information, which is available on our on our website serves to provide investors a better understanding of how we view sustainability and the key priorities. We've established in the business in areas identified by <unk> b or the sustainability accounting standards board relevant for healthcare services organizations, we are.
Aligning our ESG priorities to a corporate values.
Initial areas of focus include clinical outcomes quality of care data privacy and security access to care and sustainable human capital.
We're excited about adding ESG as an additional mosaic for investors and all stakeholders to further assess our impact.
Another key initiative is expanding hanger relationships with our partners in healthcare to continue to grow the evidence space of how best in class one P care can positively affect patient outcomes and healthcare costs.
During the first quarter, we announced the establishment of the Hanger Institute for clinical research and education.
The primary focus of the institute is to bring together all the available resources and experts across our healthcare environment to focus on leading edge clinical research evidence based care and professional education and <unk>.
We're particularly excited about the institute as a platform to facilitate collaborations with medical and academic institutions as well as those industry partners that share the same passion for patient outcomes as us.
We are in the process of signing formal partnerships that together will enable and strengthen the institute's ability to seek grants and carry out a transformational research agenda with surgeons physicians and therapists. These.
These endeavors, plus our community outreach programs, such as patient education clinics and other engagement activities are all part of our core strategy to continue to advance the practice of OSP and its value as a core component of rehabilitative medicine.
These initiatives are providing hanger, an additional benefit and increasing in more visible M&A pipeline of quality independent providers looking to partner with us.
We offer a clear value proposition to clinic operators that increasingly look at the landscape and consider the benefits of joining the industry leader.
And adjusted EBITDA grew by $1 7 million or 14, 1% as compared to that period.
There was some pressure on the results of that first quarter two years ago that our performance in 2021. Nevertheless indicates that we are beginning to see an overall tracking in the current year with pre COVID-19 results.
And the patient care segment revenue of $195 7 million reflected growth of five 5 million or two 9% compared to the first quarter of 2020.
Same clinic revenue grew at a rate of one 4%.
This segment benefited from a favorable decrease in disallowed revenue and patient non payment rates, which declined to two 9% on a combined basis as compared to four 9% in the first quarter of last year.
This provided approximately $4 million and net revenue improvement through better realization of claims there.
This performance was primarily the result of the favorable rates of collection that the company has been achieving during the past 15 months.
Adjusted EBITDA in the patient care segment grew to $24 9 million or by $7 6 million over the prior year period.
In addition to the benefit provided by lower Disallowances results were aided by good expense management in.
In particular due to COVID-19, our annual Hanger live education, and National meeting was converted to a virtual setting which save the company approximately $2 million.
In addition, the segment benefited from lower personnel and travel expenses.
And looking forward to the coming year for the patient care segment. It's important to note that while we're pleased with the favorable disallowance trends reported in the first quarter.
It's likely that this is temporary.
As revenues grow and COVID-19 settles for <unk>.
<unk> factors that have led to this improvement could subside as well.
And our disallowance trends may return to levels approaching their pre COVID-19 amounts.
Additionally, it is also important to note that we currently plan on returning to an in person format for Hanger live event in the first quarter of 2022.
So the $2 million in expense savings, we realized in the first quarter of this year will likely not reoccur in the first quarter of next year.
Now turning to our results for the products and services segment. This portion of our business reported $41 $8 million in revenue, which reflected a $1 $8 million declined from the prior year quarter.
Of this amount our distribution services decreased by approximately $1 million that's.
Related primarily to there being two fewer business days in the quarter.
Within the distribution business, new revenue growth from customer additions and product expansion.
It was essentially offset by the planned reduction in revenue from certain low margin podiatry distributors, which we exited in 2020 as well as lost revenue to hangers acquisitions of independent <unk> providers.
Despite the modest decrease from first quarter revenue for this segment earnings within products and services grew by $1 8 million to $6 9 million due to lower travel and bad debt expenses.
Corporate expenses were up modestly primarily due to increases in technology expenses and the restoration of incentive compensation.
Now I'll provide some comments on the Companys cash flows from liquidity for the quarter.
Hanger completed the first quarter with $165 1 million in total liquidity, which reflected an increase of $33 3 million from the first quarter of 2020.
This increase was primarily the result of a $22 6 million to our decrease in net working capital excluding cash debt and taxes receivable when comparing March 31 of this year to the same day last year.
Our primary contributing factor to this working capital improvement has come from a significant reduction in accounts receivable.
Despite having a $3 $7 million increase in revenues from the first quarter of this year as compared to the first quarter of last.
Accounts receivable declined by $10 7 million.
This has resulted in a favorable decrease from the company's DSO from 50 days in March of last year to 45 this year.
As the company's revenues continue to recover from the effects of the pandemic. We do believe that we will see an overall reversal and increased consumption of cash for the further re establishment of working capital.
When reviewing the company's cash flows for the quarter as expected due to the seasonality in our industry Hanger reported a net use of $42 4 million in operating cash flow during the first quarter.
Within this amount the payment of annual incentives and 401 K match amounted to an outflow of $42 9 million.
Hanger also expanded $19 4 million in cash for acquisitions completed in the quarter.
As we discussed in our March Investor call and year end earnings release, the expected revenue and earnings contribution from these acquisitions was incorporated in our original guidance for the year.
From a leverage perspective at the end of the first quarter Hanger had $442 1 million in net indebtedness and our leverage ratio of three nine times trailing 12 months earnings.
And three three times based on our guidance for the current year.
Now I'll turn my commentary towards our overall outlook for 2021.
While hanger performed well in the first quarter I think we all recognize that a substantial amount of uncertainty and speculation continues regarding the course of COVID-19.
And it's the lingering effects on our daily lives.
While we performed well in Q1, our performance during the remainder of 2021 is dependent on a continuing resolution of COVID-19, and a return to normal business conditions by the second half of the year.
As such we're closely monitoring infection vaccination in general business activity to gauge the positioning of our forecast for the full year.
With these considerations in mind, our current outlook for 2021 continues to remain that hanger will produce net revenues from the range of one one for 5 billion to $1 $1 75 billion.
And adjusted EBITDA of $130 million to $135 million.
Our outlook includes the benefit of approximately 27 million in net revenues from the annualized effect of acquisitions completed in 2020 or.
We're closed in the first quarter of this year.
From a quarterly timing perspective.
We believe the second quarter will provide a difficult year over year earnings comparison.
The current quarter will likely be affected by the lingering transitional effects of COVID-19.
And due to the fact that we had a temporary benefit of $35 million in cost reductions, which aided our results in the second quarter of last year.
In closing we are pleased with the companies start to the year.
However, as has been the case in prior years due primarily to seasonality the first quarter contributed approximately 10%.
Of our currently estimated 2021 EBITDA.
So the greater majority of the year remains ahead of us.
We're nevertheless, fortunate to have an exceptional leadership team and employee base, who have demonstrated their ability to execute and we believe they have put us in a good position with their excellent work in the first quarter of this year.
With that I'll turn the call back over to the operator to open it up for any questions you may have.
We will now begin the question and answer session.
To ask for questions. You May Press Star then one on your telephone keypad.
George.
Please go ahead for handsets.
Thank you.
With your question.
Tim.
At this time, we will talk about <unk>.
Caroline you turn from Golar Ross.
And our first question will come from Larry Solow.
J S. Mccarron. Please go ahead.
Great. Thanks, Tim and good morning, guys.
Just I realize Q1 seasonally normally very unimportant.
With respect to that for the rest of the year, and obviously with COVID-19 and a lot of factors going on.
And you haven't changed your guidance so it sounds like.
I'm just trying to get any what you can glean from from trends that youre seeing.
And your own clinics in respect to COVID-19 trends.
As COVID-19 slowly certainly is waning.
Anything you can glean additive to sort of.
Reinforce or maybe put a little.
More uncertainty in your outlook as you go out over the next few quarters, because it clearly the big macro drivers being from the net sort of somewhat out of your control so any color or thoughts for that.
Sure Good morning, Larry Yes, the way.
Metrics that we look at probably one of the major metrics, we look at our patient appointment volumes and we clearly see that that trend is getting better and has gotten better. If you think back over the last three sequential quarters. So in the fourth quarter of <unk>.
<unk> 2020.
We were at about 88% of our patient appointment volumes from the prior year in the first quarter of <unk>.
'twenty, one we were closer to 97% and so we clearly see that trend and we see the trend playing out in both border both orthotics and prosthetics. The other piece. We also monitor is our patient pipeline and how many patients are waiting for work in process.
<unk> that are waiting and we see that number also steadily increasing over the last three or four months. So that gives us comfort that the trend is heading in the right direction.
But until it's all clear we want to be cautious.
Yes, absolutely I understood. Okay, I've got a question for Tom just on the on the the unusually low this allowance rate.
And it sounded like you.
<unk> benefited from cold, but a little bit on that maybe discuss.
What sort of driving that and then I guess in the same vein your collections have been magnificent in five days that reduced the football days.
Really impressive so I guess, perhaps there's some relation to the two interest in terms of your strong metrics there.
Well, what I would look at it is there's probably three factors I mean first of all we have to go ahead again in and really recognize our revenue cycle group and the leadership there.
For the tremendous job they've done over the last 15 months and for that matter. Our field personnel, who are very very dependent on from a documentation standpoint.
For the secondary factor I would say is with the situation with COVID-19. There's just a lot of anomalous activity in particular at the payer side of the equation, where the payers have had favorable claims trends there personnel at <unk>.
Probably less pressured from a denial standpoint, and more willing to work with us on the resolution of outstanding balances.
Think thats been very fortunate, we hope to keep that posture as COVID-19 subsides, but we suspect due to their own demands that will become more difficult in a post COVID-19. The third factor that I would go ahead and highlight is impact of federal funds. Both cares act some of the different loan arrangements as well as the personal stim.
<unk> funds.
Health businesses, we do.
Commerce with to pay timely and to have the cash to do that that's helped patients or patients to pay their portion of the bills more and are more readily.
So that's been a fortunate element in our business and in our collections and obviously, we would suspect for government won't keep that pace up.
Fair enough Okay, Great and then just last question maybe for you mentioned hanger live in non <unk>.
A virtual format for them actually seemed to $2 million this year.
Can you, maybe just discuss hanging a lot a little bit the importance of it and the importance of bringing it back obviously live but.
Maybe just a little bit of color on that would be great. Thanks.
Sure Larry for 2021.
I'm, sorry for 'twenty 2021 day virtual format work well because of the situation. We were in we needed to do that and we were happy that we were able to put it up very successfully but really under normal circumstances. When COVID-19 is behind US there is a huge value to our to all our clinicians and employees because as you.
Our geography were spread all across the country with 800, plus clinicians at clinics and their staff so to bring them together in person to interact with each other to think through different care practices and clinical.
Guidelines is really important in person the other advantage of.
Doing it live is they also get to interact with our manufacturing partners and see get to see the new devices that are coming out in the marketplace in person. So when you put out to put all that together, it's a very powerful forum for our clinicians to be able to interact with live and to be honest with you. There is nothing like this.
Forum.
Anywhere in the World. So we also are able to attract.
Clinics and business owners that are thinking of selling to hanger, joining us by sometimes inviting them to this event. So they get to experience. This as well. So it's also one of our Differentiators that we have.
We're proud off and I think it's been very successful in prior years.
Alright, I appreciate the call. Thanks.
Thanks, Larry.
The next question comes from Brian <unk> of Jefferies. Please go ahead.
Hi, Good morning, it's Jack <unk> on for Brian.
Guys Congrats on a strong quarter and thanks for taking my questions for one.
To start.
Given your geographic footprint.
Could provide.
Provide any color on weather impacts in the quarter.
Any quantification there would be really great.
Sure Yes. Thanks for the question certainly whether it was pretty significant factor in general this year, because I think you're all aware of the significant weather pattern down in the southern part of the country, especially in Texas. So it occurred in the early part of February and.
It did affect us in the sense that we had to literally closed all of our clinics in Texas pretty much for the full week. It also affected our distribution center down in Dallas.
In the same manner, we need to keep it shut for a full week.
But really hats off to all our employees within the distribution centers, our clinics and our sales reps within SBS.
That they were able to rally after the weather pattern did pass and so when it affected us pretty significantly in February we don't believe there was a material impact for the quarter.
Got it okay, that's great color.
I wanted to turn to pent up demand I think it's been an ongoing conversation across health care as far as trying to.
Get a gauge on what pent up demand looks like across varying services for you. All how are you thinking about pent up demand right now and what's left to be recovered.
Specifically kind of gauging against that.
Appointment's still being down 3% year over year figure that you put out.
Sure, Yes, great question.
No.
A large portion of our patients are diabetics and it's been proven that this is the highest risk population when it comes to COVID-19.
And so when we look at our patient traffic over the last year or so we've seen a couple of things number one in.
Last year in 2020, we certainly saw that.
The higher mobility devices were less affected in terms of the patients coming in to see us which is the case III population, but the population of patients that were more in the lower mobility devices, <unk> NK too, which is primarily likely the diabetic patients.
Foot traffic slowed down considerably last year in 2020. So we know that is yet to come back and flow and flow form in 2021, and then when you look at.
Our orthotic business and I think I mentioned in my prepared remarks that shoes, and inserts were still down and.
And the reason that's important is because within that category you have the diabetic shoes and inserts, which is a large part of that particular category and thats still down so both on the orthotics and prosthetics side, we still anticipate.
Day Maysam, we feel very good about where we're going ahead with organic growth based on those investments and then also in the inorganic growth I will tell you that the M&A pipeline looks pretty solid so in terms of growth expectations. We feel like we're on the right track and as Tom pointed out in his prepared remarks were just right now being cautious before we declare that all clear until.
It's completely gone.
We will continue to be a little bit cautious in terms of how or whether we look at the our outlook, but at the current time, we feel pretty optimistic that the trend is our friend.
Awesome, that's all for me, thanks, and congrats again.
Thanks.
Okay.
Okay.
Okay.
Thank you for attending today's presentation and you may now take.
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