Business Wire | Aug 5, 2020 04:10PM EDT

Hanger Reports Second Quarter 2020 Financial Results

Aug. 05, 2020

AUSTIN, Texas--(BUSINESS WIRE)--Aug. 05, 2020--Hanger, Inc. (NYSE: HNGR), a leading provider of orthotic and prosthetic (O&P) patient care services and solutions, today announced its financial results for the second quarter ended June 30, 2020.

Financial Highlights

* Net revenue was $233.4 million for the three months ended June 30, 2020, compared to $281.1 million for the same period in 2019, reflecting a decrease of 17.0 percent. Net same clinic revenue on a day-adjusted basis declined by 18.7 percent, due primarily to a decrease in patient volumes associated with the COVID-19 pandemic. Net revenue from prosthetic services declined at a lower rate than net revenue from orthotic services.

* Net income was $31.1 million for the three months ended June 30, 2020, compared to $10.0 million for the same period in 2019. Income from operations was $38.9 million for the quarter compared to $23.1 million for the same period in 2019. Second quarter GAAP operating and net income benefited from $20.5 million related to the Company's receipt of healthcare provider grants from the United States Department of Health and Human Services under the CARES Act.

* Adjusted EBITDA was $36.5 million in the second quarter of 2020, compared to $37.4 million for the same period in 2019, reflecting a decrease of $0.9 million. Adjusted EBITDA excludes the benefit of the CARES Act healthcare provider grants. Adjusted EBITDA benefited from decreases in operating costs associated with reduced salaries, employee furloughs and other cost reduction actions.

* GAAP diluted earnings per share was $0.81 for the second quarter of 2020, compared to $0.26 per diluted share for the same period in 2019. Adjusted diluted earnings per share was $0.35 for the three months ended June 30, 2020, compared to $0.35 per share for the same period in 2019.

* On June 30, 2020, the Company had $202.7 million in liquidity, which reflected an increase of $70.9 million as compared with March 31, 2020.

Vinit Asar, President and Chief Executive Officer of Hanger, Inc., stated, "During the second quarter, our primary focus was on providing uninterrupted patient care and on the safety of patients and employees. Through the management actions we took, we were also able to build the liquidity necessary to support the Company throughout a prolonged COVID-19 pandemic." Asar continued, "As a result of the dedication and efforts of our 4,900 associates, we enter the second half of 2020 in a position of strength and with a collective confidence that we are prepared to return to a growth footing once the pandemic subsides."

Complete reconciliations of GAAP to non-GAAP financial measures are provided in the tables located at the end of this press release.

Segment Results for Three Months Ended June 30, 2020

Patient Care Segment

For the three months ended June 30, 2020, Patient Care net revenue was $195.9 million, a decrease of $35.3 million, or 15.3 percent, compared to the same period in 2019. Total revenue for the segment includes $6.2 million of revenue from O&P clinics acquired in 2019 and 2020, net of consolidations.

Net same clinic revenue declined by 18.7 percent during the quarter compared to the prior year period. This decline was due primarily to lower patient volumes during the second quarter resulting from the impact of the COVID-19 pandemic. Excluding acquisitions, net revenue from prosthetics declined 8.9 percent in the quarter and net revenue from orthotics declined 30.4 percent. Prosthetics comprised 61.3 percent of Patient Care segment net revenue during the second quarter of 2020 as compared to 55.0 percent during the same period in 2019.

During the second quarter, the Patient Care segment experienced a gradual reduction in the adverse effects of the pandemic on patient appointment volumes as they decreased by approximately 40 percent in April, 34 percent in May and 24 percent in June, each as compared with their respective prior period in 2019. The average decline in patient appointments for the quarter was 33 percent. As of June 30, 2020, the Company had temporarily closed 24 patient care clinics and another 137 clinics were open for reduced hours or by appointment only.

Income from operations in the Patient Care segment was $58.6 million during the second quarter of 2020, an increase of $16.8 million compared to the $41.8 million reported in the prior year. GAAP Patient Care segment results included a benefit of $20.5 million to other operating costs related to the Company's receipt of CARES Act healthcare provider grants. These grants were received under the Public Health and Social Services Emergency fund, also referred to as The Provider Relief Fund, established by the CARES Act.

Adjusted EBITDA for the segment was $44.2 million, which reflected a $3.2 million or 6.7 percent decrease. Adjusted EBITDA excludes the benefit of the CARES Act healthcare provider grants. Adjusted EBITDA margin in the segment totaled 22.6 percent compared to 20.5 percent during the second quarter of 2019. The growth in Adjusted EBITDA margin resulted primarily from temporary labor and other cost reduction actions implemented in the quarter. These included a decrease in exempt employee salaries, employee furloughs and reductions in non-exempt employee hours. The Patient Care segment also benefited from lower materials costs during the second quarter, primarily associated with reduced business volumes and the beneficial effect of freight savings initiatives.

Products & Services Segment

For the three months ended June 30, 2020, Products & Services net revenue totaled $37.6 million, a decline of 24.7 percent compared with the same period in 2019. Revenue from the distribution of O&P componentry declined by $11.1 million, or 29.6 percent, primarily from lower sales volumes of O&P componentry due to the COVID-19 pandemic, and to a lesser extent, the Company's decision to exit the distribution of certain low margin off-the-shelf orthotics into third-party channels. Therapeutic Solutions revenue declined $1.2 million, or 9.9 percent.

Income from operations for the Products & Services segment increased by $0.8 million in the second quarter of 2020 compared to the same period in 2019. Adjusted EBITDA for the Products & Services segment totaled $8.6 million for the second quarter of 2020, a $0.8 million increase compared with the same period of 2019. Adjusted EBITDA margin in the segment totaled 22.9 percent compared to 15.6 percent during the second quarter of 2019. Products & Services segment margins and earnings were positively affected by lower operating costs associated with temporary labor cost reductions and decreases in materials costs associated with lower business volumes.

Corporate & Other

Expenses associated with corporate and other activities increased by $1.9 million to $25.5 million for the quarter ended June 30, 2020 compared to the same period in 2019. The increase in Corporate & Other expenses arose from a non-cash increase in equity-based compensation offset by temporary labor cost reductions and a decrease in systems implementation costs associated with management's decision to pause the supply chain and financial systems project. The increase in equity-based compensation expense related to a non-cash charge of $5.9 million associated with a modification to the 2017 Special Equity Plan awards, which vested in the second quarter of 2020.

Excluding the effect of depreciation and amortization, non-cash equity-based compensation expense and certain non-recurring expenses, the net cost of corporate and other activities decreased by $1.5 million to $16.3 million in the second quarter of 2020.

Net Income; Interest Expense

Interest expense totaled $8.6 million for the three month period ended June 30, 2020, an increase of $0.2 million from the prior year period.

For the three month period ended June 30, 2020, net income was $31.1 million compared with $10.0 million for the same period in 2019. GAAP diluted income per share was $0.81 compared to $0.26 per share in 2019. Adjusted diluted income per share was $0.35 for the three months ended June 30, 2020, compared to $0.35 per share for the same period in 2019.

Financial Highlights for the Six Months Ended June 30, 2020

* Net revenue was $467.2 million for the six months ended June 30, 2020, compared to $517.5 million for the same period of 2019, reflecting a net revenue decline of 9.7 percent. For the six month period, acquisitions that occurred in 2019 and 2020 contributed $9.0 million of revenue, net of consolidations.

* Patient Care net revenue declined $35.7 million, or 8.5 percent, for the year-to-date period to $386.0 million, while same clinic day-adjusted net revenue per day declined 11.7 percent. Revenue from prosthetics, excluding acquisitions, decreased 5.3 percent on a net day-adjusted basis, while orthotics revenue, excluding acquisitions, declined by 18.6 percent, also on a net day-adjusted basis.

* Products & Services segment net revenue declined $14.6 million, or 15.3 percent, driven by a decrease of $12.6 million in distribution services and a $2.0 million decrease, or 7.9 percent decline in revenue from therapeutic solutions.

* GAAP net income was $15.3 million for the six months ended June 30, 2020, compared to a $3.1 million for the same period in 2019. The first six months of 2020 included a benefit of $20.5 million to other operating costs related to the receipt of CARES grants.

* Adjusted EBITDA of $41.8 million for the first six months of 2020 was $7.5 million lower as compared to the $49.3 million reported in the prior year period. Adjusted EBITDA excludes the benefit of the CARES Act healthcare provider grants. The decline in Adjusted EBITDA is a result of lower patient volumes during March through June 2020 associated with the COVID-19 pandemic, partially offset by temporary reductions in personnel costs and other expense.

* For the six months ended June 30, 2020, GAAP diluted earnings per share was $0.40, compared to $0.08 per share in 2019. Adjusted diluted earnings per share was $0.07 for the first six months of 2020, compared to $0.20 per share for the same period in 2019.

Net Cash Provided by Operating Activities and Liquidity

Cash flows provided by operating activities for the three months ending June 30, 2020 were $102.0 million compared to $29.3 million for the same period in 2019. The Company benefited from improvements in cash collections during the second quarter of 2020 as its days sales outstanding decreased from 47 days as of June 30, 2019 to 45 days on June 30, 2020.

On June 30, 2020, the Company had liquidity of $202.7 million, comprised of $129.9 million in cash and cash equivalents, and $72.8 million in available borrowing capacity under its revolving credit facility. This compares to total liquidity of $131.8 million on March 31, 2020.

Outlook Regarding the Effects of the COVID-19 Pandemic on Prospective Results

At the onset of the second quarter, in response to the COVID-19 pandemic, the Company made certain changes to its operations, implemented a broad number of cost reduction measures, and temporarily delayed certain capital investment projects. While the Company cannot forecast with certainty the ultimate extent of the impacts from or the duration of the COVID-19 pandemic, it does currently believe that these measures, when accompanied if necessary by additional funding sources, if available, and further cost reduction actions, will enable it to maintain sufficient liquidity in the event the pandemic has a prolonged adverse impact on patient volumes similar to that experienced in the second quarter.

The Company is currently managing its staffing levels to support continuing reduced levels of patient volumes. However, given the successful performance of the Company's second quarter plan to accumulate capital sufficient to endure the business effects of the pandemic, it has chosen to implement a gradual reinstatement of wage reductions. Salaries for exempt employees were initially reduced by an average of 32 percent in April 2020. One-third of this reduction was reinstated in June 2020, a further one-third was reinstated during July 2020, and the final outstanding 11 percent reduction in wages is currently expected to be reinstated no later than the end of the third quarter of 2020. The Company also commenced the gradual reduction of employee furloughs in June 2020. These actions will increase the Company's operating costs during future quarters, and, given the continuing adverse effects that the COVID-19 pandemic is anticipated to have on patient volumes, it is likely that quarterly earnings for at least the remainder of 2020 will be depressed as compared with second quarter 2020 levels. Accordingly, the Company has currently planned for a consumption of a portion of its cash balances to fund its operations during the remaining two quarters of the year.

Given the continuing uncertain and material effects the COVID-19 pandemic will likely have on prospective results, the Company is not providing guidance as to its anticipated financial results for the current year.

Conference and Webcast Details

The Company's management team will host a conference call tomorrow, Thursday, August 6, at 8:30 a.m. Eastern time to discuss the Company's second quarter 2020 financial results and business outlook.

To participate, dial 866-270-1533 or 412-317-0797 outside the U.S. and Canada, and ask to be joined into the Hanger, Inc. call. A live webcast, replay of the call and earnings release, will be available on the Company's Investor Relations website: www.investor.hanger.com/financial-reporting.

Additional Notes

A reconciliation of GAAP and non-GAAP financial results is included in the tables provided at the back of this press release. The Company has provided certain supplemental key statistics relating to its results for certain prior periods. These key statistics are non-GAAP measures used by the Company's management to analyze the Company's business results that are being provided for informational and analytical context.

Accompanying supplemental information will be posted to the Investor Relations section of Hanger's web site at www.hanger.com/investors.

About Hanger, Inc. - Hanger, Inc. (NYSE: HNGR) delivers orthotic and prosthetic (O&P) patient care, and distributes O&P products and rehabilitative solutions to the broader market. Hanger's Patient Care segment is the largest owner and operator of O&P patient care clinics with approximately 800 locations nationwide. Through its Products & Services segment, Hanger distributes branded and private label O&P devices, products and components, and provides rehabilitative solutions. With nearly 160 years of clinical excellence and innovation, Hanger's vision is to lead the orthotic and prosthetic markets by providing superior patient care, outcomes, services and value. For more information on Hanger, visit www.hanger.com.

This earnings release contains statements that are forward-looking statements within the meaning of the federal securities laws. Forward-looking statements include information concerning our liquidity and our possible or assumed future results of operations, including descriptions of our business strategies. These statements often include words such as "believe," "expect," "project," "potential," "anticipate," "intend," "plan," "estimate," "seek," "will," "may," "would," "should," "could," "forecasts" or similar words. These statements are based on certain assumptions that we have made in light of our experience in the industry as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate in these circumstances. We believe these assumptions are reasonable, but you should understand that these statements are not guarantees of performance or results, and our actual results could differ materially from those expressed in the forward-looking statements due to a variety of important factors, both positive and negative, that may be revised or supplemented in subsequent releases or reports. These statements involve risks, estimates, assumptions, and uncertainties that could cause actual results to differ materially from those expressed in these statements and elsewhere in this release. These uncertainties include, but are not limited to, the financial and business impacts of COVID-19 on our operations and the operations of our customers, suppliers, governmental and private payers and others in the healthcare industry and beyond; federal laws governing the health care industry; governmental policies affecting O&P operations, including with respect to reimbursement; failure to successfully implement a new enterprise resource planning system or other disruptions to information technology systems; the inability to successfully execute our acquisition strategy, including integration of recently acquired O&P clinics into our existing business; changes in the demand for our O&P products and services, including additional competition in the O&P services market; disruptions to our supply chain; our ability to enter into and derive benefits from managed-care contracts; our ability to successfully attract and retain qualified O&P clinicians; and other risks and uncertainties generally affecting the health care industry. For additional information and risk factors that could affect the Company, see its Form 10-K for the year ended December 31, 2019 and Quarterly Report on Form 10-Q for the three months ended June 30, 2020, each as filed with the Securities and Exchange Commission. The information contained in this press release is made only as of the date hereof, even if subsequently made available by the Company on its website or otherwise.

Table 1

Hanger, Inc.

Condensed Consolidated Statements of Operations

(Unaudited - in thousands, except share and per share amounts)

For the Three Months Ended For the Six Months Ended June 30, June 30,

2020 2019 2020 2019

Net revenues $ 233,434 $ 281,098 $ 467,173 $ 517,517

Material costs 69,972 91,399 147,213 169,776

Personnel costs 73,822 91,490 163,007 178,201

Other operating 8,277 33,741 44,163 67,296 costs (a)

General andadministrative 31,874 29,358 60,247 57,640 expenses

Professionalaccounting and 1,749 3,247 5,145 5,947 legal fees

Depreciation and 8,879 8,760 17,710 17,533 amortization

Income from 38,861 23,103 29,688 21,124 operations

Interest expense, 8,636 8,481 16,906 17,019 net

Non-service definedbenefit plan 158 173 316 346 expense

Income before 30,067 14,449 12,466 3,759 income taxes

(Benefit) provision (987 ) 4,414 (2,840 ) 675 for income taxes

Net income $ 31,054 $ 10,035 $ 15,306 $ 3,084



Basic and DilutedPer Common Share Data:

Basic earnings per $ 0.82 $ 0.27 $ 0.41 $ 0.08 share

Weighted averageshares used tocompute basic 37,958,408 37,299,766 37,749,930 37,151,694 earnings per commonshare

Diluted earnings $ 0.81 $ 0.26 $ 0.40 $ 0.08 per share

Weighted averageshares used tocompute diluted 38,325,872 37,887,559 38,424,334 37,889,586 earnings per commonshare

(a) For the three and six months ended June 30, 2020, Hanger recognizedapproximately $20.5 million of income within other operating costs related togrant proceeds received under the CARES Act.

Table 2

Hanger, Inc.

Condensed Consolidated Balance Sheets

(Unaudited - in thousands)

As of June As of December 30, 31,

2020 2019

ASSETS

Current assets:

Cash and cash equivalents $ 129,853 $ 74,419

Accounts receivable, net 115,575 159,359

Inventories 65,152 68,204

Income taxes receivable 4,409 -

Other current assets 16,740 13,673

Total current assets 331,729 315,655

Non-current assets:

Property, plant, and equipment, net 90,195 84,057

Goodwill 271,646 232,244

Other intangible assets, net 20,841 17,952

Deferred income taxes 73,036 70,481

Operating lease right-of-use assets 127,725 110,559

Other assets 14,811 11,305

Total assets $ 929,983 $ 842,253



TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Current portion of long-term debt $ 27,501 $ 8,752

Accounts payable 51,449 48,477

Accrued expenses and other current 68,196 55,825 liabilities

Accrued compensation related costs 45,653 61,010

Current portion of operating lease 33,839 34,342 liabilities

Total current liabilities 226,638 208,406



Long-term liabilities:

Long-term debt, less current portion 516,507 490,121

Operating lease liabilities 108,489 88,418

Other liabilities 57,501 45,804

Total liabilities 909,135 832,749



Shareholders' equity:

Common stock 383 376

Additional paid-in capital 360,014 354,326

Accumulated other comprehensive loss (21,970 ) (12,551 )

Accumulated deficit (316,883 ) (331,951 )

Treasury stock, at cost (696 ) (696 )

Total shareholders' equity 20,848 9,504

Total liabilities and shareholders' equity $ 929,983 $ 842,253



Table 3

Hanger, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited - in thousands)

For the Six Months Ended June 30,

2020 2019

Cash flows provided by (used in) operating activities:

Net income $ 15,306 $ 3,084

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation and amortization 17,710 17,533

Provision for doubtful accounts 1,084 304

Share-based compensation expense 12,485 6,715

Deferred income taxes (9 ) 779

Amortization of debt discounts and issuance costs 936 797

Gain on sale and disposal of fixed assets (531 ) (792 )

Changes in operating assets and liabilities:

Accounts receivable, net 44,917 (1,010 )

Inventories 5,072 (1,862 )

Other current assets and other assets (4,882 ) (1,100 )

Income taxes (5,278 ) (1,339 )

Accounts payable 305 (3,208 )

Accrued expenses and other current liabilities 2,393 (2,778 )

Accrued compensation related costs (15,536 ) (17,901 )

Other liabilities 3,686 (1,871 )

Operating lease liabilities, net of amortization of 2,403 (890 )right-of-use assets

Net cash provided by (used in) operating activities 80,061 (3,539 )

Cash flows used in investing activities:

Acquisitions, net of cash acquired (16,788 ) (27,916 )

Purchase of property, plant, and equipment (15,742 ) (14,806 )

Purchase of therapeutic program equipment leased to (3,065 ) (3,530 )third parties under operating leases

Proceeds from sale of property, plant, and equipment 1,134 1,476

Purchase of company-owned life insurance investment (250 ) -

Net cash used in investing activities (34,711 ) (44,776 )

Cash flows provided by (used in) financing activities:

Borrowings under revolving credit agreement 79,000 -

Repayment of borrowings under revolving credit (57,000 ) - agreement

Repayment of term loan (2,525 ) (2,525 )

Payment of employee taxes on share-based compensation (6,828 ) (3,654 )

Payment on seller notes (1,799 ) (2,162 )

Payments of financing lease obligations (314 ) (229 )

Payments under vendor financing arrangements (275 ) -

Payment of debt issuance costs (214 ) -

Proceeds from the exercise of options 39 -

Net cash provided by (used in) financing activities 10,084 (8,570 )

Increase (decrease) in cash and cash equivalents 55,434 (56,885 )

Cash and cash equivalents at beginning of period 74,419 95,114

Cash and cash equivalents at end of period $ 129,853 $ 38,229



Table 4

Hanger, Inc.

Segment Information: Revenue, EBITDA and Adjusted EBITDA

(Unaudited - in thousands)



EBITDA is defined as operating income before depreciation and amortization.Adjusted EBITDA is defined as operating income before certain charges,third-party professional fees in excess of normal amounts incurred inconnection with our financial statement remediation, expenses associated withequity-based compensation, severance expenses, certain expenses incurred inconnection with our acquisitions, proceeds received from grants under theCoronavirus Aid, Relief and Economy Security Act ("CARES Act") and certainother charges.



We use EBITDA and Adjusted EBITDA as measures to assess the relative level ofour indebtedness and our compliance with certain debt covenants which are basedon these measures. Additionally, we utilize these measures to assess ouroperating and financial performance. We believe that these measures enhance auser's understanding of normal operating income excluding certain charges,depreciation and amortization.



Neither EBITDA or Adjusted EBITDA are measures of financial performancecomputed in accordance with Generally Accepted Accounting Principles ("GAAP")and should not be considered in isolation nor as a substitute for operatingincome, net income, cash flows from operations, or other statement ofoperations or cash flow data prepared in conformity with GAAP, or as a measureof profitability or liquidity. In addition, the calculation of EBITDA andAdjusted EBITDA is susceptible to varying interpretations and calculations, andthe amounts presented may not be comparable to similarly titled measures ofother companies. EBITDA and Adjusted EBITDA may not be indicative of historicaloperating results, and we do not intend these measures to be predictive offuture results of operations.

For the Three Months For the Six Months Ended Ended June 30, June 30,

2020 2019 2020 2019



Net Revenue (a)

Patient Care $ 195,859 $ 231,168 $ 386,042 $ 421,769

Products & Services 37,575 49,930 81,131 95,748

Net revenue $ 233,434 $ 281,098 $ 467,173 $ 517,517



EBITDA (b)

Patient Care $ 63,446 $ 46,276 $ 79,459 $ 66,585

Products & Services 8,256 7,520 13,088 14,161

Corporate & Other (23,962 ) (21,933 ) (45,149 ) (42,089 )

EBITDA (Non-GAAP) $ 47,740 $ 31,863 $ 47,398 $ 38,657



Adjusted EBITDA (b)

Patient Care $ 44,193 $ 47,377 $ 61,519 $ 68,769

Products & Services 8,590 7,766 13,627 14,651

Corporate & Other (16,258 ) (17,758 ) (33,355 ) (34,167 )

Adjusted EBITDA $ 36,525 $ 37,385 $ 41,791 $ 49,253 (Non-GAAP)



(a) Excludes intersegment revenue.

(b) EBITDA and Adjusted EBITDA are "Non-GAAP" measures. Please refer to bothTable 6 and Table 7 for a reconciliation of these measures to GAAP net income.

Table 5

Hanger, Inc.

Reconciliation of Net Income and Earnings Per Share to

Adjusted Net Income and Adjusted Earnings Per Share

(Unaudited - in thousands, except share and per share amounts)



Earnings Per Share (or "EPS") is defined as net income divided by our basic ordiluted common shares during the applicable period. Adjusted EPS is defined asEPS adjusted for certain equity-based compensation charges, third-partyprofessional fees in excess of normal amounts incurred in connection with ourfinancial statement remediation, severance expenses, certain expenses incurredin connection with our acquisitions, proceeds received from grants under theCARES Act, and certain other charges.



We utilize Adjusted EPS to assess our operating and financial performance. Webelieve that this measure enhances a user's understanding of normal operatingresults excluding certain charges.



Adjusted EPS is not a measure of financial performance computed in accordancewith GAAP and should not be considered in isolation nor as a substitute foroperating income, net income, cash flows from operations, or other statement ofoperations or cash flow data prepared in conformity with GAAP, or as a measureof profitability or liquidity. In addition, the calculation of Adjusted EPS issusceptible to varying interpretations and calculations, and the amountspresented may not be comparable to similarly titled measures of othercompanies. Adjusted EPS may not be indicative of historical operating results,and we do not intend these measures to be predictive of future results ofoperations.

For the Three Months Ended For the Six Months Ended June 30, June 30,

2020 2019 2020 2019



Net income - as $ 31,054 $ 10,035 $ 15,306 $ 3,084 reported (GAAP)



Adjustments:

Modification of 5,869 - 5,869 - equity awards (a)

Amortization 1,783 1,126 3,274 2,356 expense

Third-party - 1,745 1,639 3,394 professional fees

Acquisition-related 39 328 372 498 expenses

Hanger supply chainimplementation 295 - 430 - costs

Severance expenses - (1 ) - (11 )

Proceeds fromgrants under the (20,533 ) - (20,533 ) - CARES Act

Adjustments prior $ (12,547 ) $ 3,198 $ (8,949 ) $ 6,237 to tax effect



Tax effect ofspecified (5,192 ) 179 (3,684 ) (1,724 )adjustments (b)

Adjustments after (17,739 ) 3,377 (12,633 ) 4,513 taxes



Adjusted net income $ 13,315 $ 13,412 $ 2,673 $ 7,597 (Non-GAAP)



Basic earnings pershare - as reported $ 0.82 $ 0.27 $ 0.41 $ 0.08 (GAAP)

Effect of abovelisted specified (0.47 ) 0.09 (0.34 ) 0.12 adjustments

Adjusted basicearnings per share $ 0.35 $ 0.36 $ 0.07 $ 0.20 - as reported(Non-GAAP)



Diluted earningsper share - as $ 0.81 $ 0.26 $ 0.40 $ 0.08 reported (GAAP)

Effect of abovelisted specified (0.46 ) 0.09 (0.33 ) 0.12 adjustments

Adjusted dilutedearnings per share $ 0.35 $ 0.35 $ 0.07 $ 0.20 - as reported(Non-GAAP)



Shares used tocompute basic 37,958,408 37,299,766 37,749,930 37,151,694 earnings per share

Shares used tocompute diluted 38,325,872 37,887,559 38,424,334 37,889,586 earnings per share

(a) Modification of equity awards reflect a non-recurring charge in the secondquarter of 2020 for incremental equity-based compensation expense under ASC718, Stock Compensation, related to the modification of certain equity awardsgranted in 2017.

(b) "Tax effect of specified adjustments" reflects the difference between theCompany's effective provision for taxes and the application of a combinedfederal and state statutory tax rate of 24% for the 2020 and 2019 periods tothe Company's earnings from operations before taxes, after the incorporation ofthe identified adjustments above.

Table 6

Hanger, Inc.

Reconciliation of Net Income to EBITDA and Adjusted EBITDA

(Unaudited - in thousands)



EBITDA is defined as operating income before depreciation and amortization.Adjusted EBITDA is defined as operating income before certain charges,third-party professional fees in excess of normal amounts incurred inconnection with our financial statement remediation, expenses associated withequity-based compensation, severance expenses, certain expenses incurred inconnection with our acquisitions, proceeds received from grants under the CARESAct and certain other charges.



We use EBITDA and Adjusted EBITDA as measures to assess the relative level ofour indebtedness and our compliance with certain debt covenants which are basedon these measures. Additionally, we utilize these measures to assess ouroperating and financial performance. We believe that these measures enhance auser's understanding of normal operating income excluding certain charges,depreciation and amortization.



Neither EBITDA or Adjusted EBITDA are measures of financial performancecomputed in accordance with Generally Accepted Accounting Principles ("GAAP")and should not be considered in isolation nor as a substitute for operatingincome, net income, cash flows from operations, or other statement ofoperations or cash flow data prepared in conformity with GAAP, or as a measureof profitability or liquidity. In addition, the calculation of EBITDA andAdjusted EBITDA is susceptible to varying interpretations and calculations, andthe amounts presented may not be comparable to similarly titled measures ofother companies. EBITDA and Adjusted EBITDA may not be indicative of historicaloperating results, and we do not intend these measures to be predictive offuture results of operations.

For the Three Months For the Six Months Ended June 30, Ended June 30,

2020 2019 2020 2019



Net income - as reported $ 31,054 $ 10,035 $ 15,306 $ 3,084 (GAAP)



Adjustments to calculate EBITDA:

Depreciation and 8,879 8,760 17,710 17,533 amortization

Interest expense, net 8,636 8,481 16,906 17,019

Non-service defined benefit 158 173 316 346 plan expense

(Benefit) provision for (987 ) 4,414 (2,840 ) 675 income taxes

Adjustments - net (loss) 16,686 21,828 32,092 35,573 income to EBITDA

EBITDA (Non-GAAP) 47,740 31,863 47,398 38,657



Further adjustments to calculate Adjusted EBITDA:

Third-party professional - 1,745 1,639 3,394 fees

Equity-based compensation 8,984 3,450 12,485 6,715 (a)

Acquisition-related 39 328 372 498 expenses

Hanger supply chain 295 - 430 - implementation costs

Severance expenses - (1 ) - (11 )

Proceeds from grants under (20,533 ) - (20,533 ) - the CARES Act

Further adjustments - (11,215 ) 5,522 (5,607 ) 10,596 EBITDA to Adjusted EBITDA

Adjusted EBITDA (Non-GAAP) $ 36,525 $ 37,385 $ 41,791 $ 49,253

(a) Equity- based compensation expense includes an incremental charge in thesecond quarter of 2020 under ASC 718, Stock Compensation of approximately $5.9million related to the modification of certain equity awards granted in 2017.

Table 7

Hanger, Inc.

Segment Reconciliation of Income From Operations to EBITDA and Adjusted EBITDA

(Unaudited - in thousands)



EBITDA is defined as operating income before depreciation and amortization.Adjusted EBITDA is defined as operating income before certain charges,third-party professional fees in excess of normal amounts incurred inconnection with our financial statement remediation, expenses associated withequity-based compensation, severance expenses, certain expenses incurred inconnection with our acquisitions, proceeds received from grants under the CARESAct and certain other charges.



We use EBITDA and Adjusted EBITDA as measures to assess the relative level ofour indebtedness and our compliance with certain debt covenants which are basedon these measures. Additionally, we utilize these measures to assess ouroperating and financial performance. We believe that these measures enhance auser's understanding of normal operating income excluding certain charges,depreciation and amortization.



Neither EBITDA or Adjusted EBITDA are measures of financial performancecomputed in accordance with Generally Accepted Accounting Principles ("GAAP")and should not be considered in isolation nor as a substitute for operatingincome, net income, cash flows from operations, or other statement ofoperations or cash flow data prepared in conformity with GAAP, or as a measureof profitability or liquidity. In addition, the calculation of EBITDA andAdjusted EBITDA is susceptible to varying interpretations and calculations, andthe amounts presented may not be comparable to similarly titled measures ofother companies. EBITDA and Adjusted EBITDA may not be indicative of historicaloperating results, and we do not intend these measures to be predictive offuture results of operations.

For the Three Months For the Six Months Ended June 30, Ended June 30,

2020 2019 2020 2019

Patient Care

Income from operations - as $ 58,619 $ 41,774 $ 70,156 $ 57,531 reported (GAAP)

Depreciation & amortization 4,827 4,502 9,303 9,054

EBITDA (Non-GAAP) 63,446 46,276 79,459 66,585

Further adjustments to calculate Adjusted EBITDA:

Equity-based compensation 1,078 1,101 2,256 2,195

Hanger supply chain 202 - 337 - implementation costs

Severance expenses - - - (11 )

Proceeds from grants under (20,533 ) - (20,533 ) - the CARES Act

Further adjustments - (19,253 ) 1,101 (17,940 ) 2,184 EBITDA to Adjusted EBITDA

Adjusted EBITDA (Non-GAAP) 44,193 47,377 61,519 68,769



Products & Services

Income from operations - as 5,758 4,924 7,838 9,022 reported (GAAP)

Depreciation & amortization 2,498 2,596 5,250 5,139

EBITDA (Non-GAAP) 8,256 7,520 13,088 14,161

Further adjustments to calculate Adjusted EBITDA:

Equity-based compensation 241 246 446 490

Hanger supply chain 93 - 93 - implementation costs

Further adjustments - 334 246 539 490 EBITDA to Adjusted EBITDA

Adjusted EBITDA (Non-GAAP) 8,590 7,766 13,627 14,651



Corporate & Other

Loss from operations - as (25,516 ) (23,595 ) (48,306 ) (45,429 )reported (GAAP)

Depreciation & amortization 1,554 1,662 3,157 3,340

EBITDA (Non-GAAP) (23,962 ) (21,933 ) (45,149 ) (42,089 )

Further adjustments to calculate Adjusted EBITDA:

Third-party professional - 1,745 1,639 3,394 fees

Equity-based compensation 7,665 2,103 9,783 4,030 (a)

Acquisition related 39 328 372 498 expenses

Severance expenses - (1 ) - -

Further adjustments - 7,704 4,175 11,794 7,922 EBITDA to Adjusted EBITDA

Adjusted EBITDA (Non-GAAP) (16,258 ) (17,758 ) (33,355 ) (34,167 )

Total Adjusted EBITDA $ 36,525 $ 37,385 $ 41,791 $ 49,253 (Non-GAAP)

(a) Equity- based compensation expense includes an incremental charge in thesecond quarter of 2020 under ASC 718, Stock Compensation of approximately $5.9million related to the modification of certain equity awards granted in 2017.

Table 8

Hanger, Inc.

Indebtedness

(Unaudited - in thousands)

As of June As of December 30, 31,

2020 2019

Debt:

Term Loan B $ 493,638 $ 496,163

Revolving credit facility 22,000 -

Seller notes 29,610 9,005

Deferred payment obligation 4,000 -

Finance lease liabilities and other 3,152 2,033

Total debt before unamortized discount and debt 552,400 507,201 issuance costs

Unamortized discount and debt issuance costs, (8,392 ) (8,328 )net

Total debt $ 544,008 $ 498,873



Current portion of long-term debt:

Term Loan B $ 5,050 $ 5,050

Seller notes 21,710 3,175

Finance lease liabilities and other 741 527

Total current portion of long-term debt 27,501 8,752

Long-term debt $ 516,507 $ 490,121



Net indebtedness:

Total debt before unamortized discount and debt $ 552,400 $ 507,201 issuance costs

Cash and cash equivalents (129,853 ) (74,419 )

Net indebtedness $ 422,547 $ 432,782



Table 9

Hanger, Inc.

Key Operating Metrics

As of and For the For the Three Months Six Months Ended Ended June 30, June 30,

2020 2019 2020 2019



Same clinic revenue:

(Decline) growth rate on net revenue (18.7)% 3.0% (11.0)% 0.8%

(Decline) growth rate day adjusted (a) (18.7)% 3.0% (11.7)% 1.6%



Clinical locations:

Patient care clinics 707 696

Satellite clinics 108 109

Total clinical locations 815 805

(a) Same Clinic Revenue per Day - Same Clinic Revenue per Day normalizesrevenue for the number of days a clinic was open in each comparable period.These measures are both non-GAAP and unaudited.

View source version on businesswire.com: https://www.businesswire.com/news/home/20200805005823/en/

CONTACT: Investor Relations Contacts: Thomas Kiraly, Executive Vice President and Chief Financial Officer, Hanger, Inc. 512-777-3600 tkiraly@hanger.com

CONTACT: Seth Frank, Vice President, Treasury and Investor Relations, Hanger, Inc. 512-777-3573 sfrank@hanger.com