Hanger Reports Full Year 2017 Results

Table 1

Hanger, Inc.

Consolidated Balance Sheets

(dollars in thousands, except par value and share amounts)

As of December 31,

2017

2016

ASSETS

Current assets:

Cash and cash equivalents

$         1,508

$         7,157

Net accounts receivable, less allowance for doubtful accounts of $14,065
and $15,521 in 2017 and 2016, respectively

146,346

144,562

Inventories

69,138

68,225

Income taxes receivable

13,079

13,200

Other current assets

20,888

19,137

Total current assets

250,959

252,281

Non-current assets:

Property, plant and equipment, net

93,615

100,467

Goodwill

196,343

249,678

Other intangible assets, net

21,940

32,941

Deferred income taxes

68,126

94,223

Other assets

9,440

25,514

Total assets

$     640,423

$     755,104

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Current portion of long-term debt

$         4,336

$       30,944

Accounts payable

48,269

50,549

Accrued expenses and other current liabilities

65,838

78,950

Accrued interest payable

845

662

Accrued compensation related costs

53,005

36,162

Total current liabilities

172,293

197,267

Long-term liabilities:

Long-term debt, less current portion

445,928

441,706

Other liabilities

50,253

50,717

Total liabilities

668,474

689,690

Commitments and contingent liabilities

Shareholders (Deficit) Equity:

Common stock, $.01 par value; 60,000,000 shares authorized;
36,515,232 shares issued and 36,372,411 shares outstanding in 2017,
and 36,183,894 shares issued and 36,041,073 shares outstanding in 2016

365

362

Additional paid-in capital

333,738

322,191

Accumulated other comprehensive loss

(1,686)

(1,440)

Retained deficit

(359,772)

(255,003)

Treasury stock, at cost 142,821 shares at 2017 and 2016, respectively

(696)

(696)

Total shareholders (deficit) equity

(28,051)

65,414

Total liabilities and shareholders' (deficit) equity

$     640,423

$     755,104

Table 2

Hanger, Inc.

Consolidated Statements of Operations and Comprehensive Loss

(dollars in thousands, except share and per share amounts)

For the Years Ended December 31,

2017

2016

2015

Net revenue

$  1,040,769

$  1,042,054

$  1,067,172

Material costs

329,223

332,071

336,283

Personnel costs

361,090

363,537

367,094

Other operating costs

129,831

139,024

140,839

General and administrative expenses

110,078

107,224

111,761

Professional accounting and legal fees

36,239

41,233

28,647

Depreciation and amortization

39,259

44,887

46,343

Impairment of intangible assets

54,735

86,164

385,807

Loss from operations

(19,686)

(72,086)

(349,602)

Interest expense, net

57,688

45,199

29,892

Loss on extinguishment of debt

6,031

7,237

Loss from continuing operations before income taxes

(77,374)

(123,316)

(386,731)

Provision (benefit) for income taxes

27,297

(15,910)

(67,614)

Loss from continuing operations

(104,671)

(107,406)

(319,117)

Income (loss) from discontinued operations, net of income taxes

-

935

(7,974)

Net loss

$   (104,671)

$   (106,471)

$   (327,091)

Other comprehensive (loss) income:

Unrealized (loss) gain on DB SERP, net of income tax (benefit) provision
of $(151), $(16) and $81 for 2017, 2016, and 2015, respectively

$          (246)

$            (26)

$            474

Comprehensive loss

$   (104,917)

$   (106,497)

$   (326,617)

Basic and Diluted Per Common Share Data:

Loss from continuing operations

$         (2.89)

$         (2.99)

$         (8.96)

Income (loss) from discontinued operations, net of income taxes

-

0.03

(0.22)

Basic and diluted loss per common share

$         (2.89)

$         (2.96)

$         (9.18)

Shares used to compute basic and diluted per common share amounts

36,270,920

35,933,222

35,635,448

Table 3

Hanger, Inc.

Consolidated Statements of Cash Flows

(dollars in thousands)

For the Years Ended December 31,

2017

2016

2015

Cash flows from operating activities:

Net loss

$   (104,671)

$   (106,471)

$   (327,091)

Income (loss) from discontinued operations, net of income taxes

-

935

(7,974)

Loss from continuing operations

(104,671)

(107,406)

(319,117)

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization

39,259

44,887

46,343

Provision for doubtful accounts

9,422

13,727

12,854

Impairment of long-lived and intangible assets

54,735

86,164

385,807

Stock-based compensation expense

12,930

9,763

11,134

Provision (benefit) for deferred income taxes

26,248

4,031

(48,926)

Amortization of debt issuance costs

8,876

4,921

3,371

Loss on extinguishment of debt

-

6,031

7,237

Gain on sale and disposal of fixed assets

(2,059)

(5,055)

(2,384)

Changes in operating assets and liabilities, net of effects of acquired companies:

Net accounts receivable

(12,585)

17,612

(13,625)

Inventories

(913)

253

2,520

Other current assets

661

849

3,913

Income taxes

121

18,725

(40,152)

Accounts payable

(3,562)

(3,133)

8,084

Accrued expenses and accrued interest payable

(12,929)

(3,045)

(6,264)

Accrued compensation related costs

16,843

(12,006)

6,877

Other liabilities

(2,271)

(5,797)

6,940

Net cash provided by operating activities - continuing operations

30,105

70,521

64,612

Net cash used in operating activities - discontinued operations

-

(1,425)

(5,098)

Net cash provided by operating activities

30,105

69,096

59,514

Cash flows from investing activities:

Purchase of property, plant and equipment

(16,355)

(21,148)

(27,620)

Purchase of equipment leased to third parties under operating leases

(6,000)

(2,476)

(4,632)

Acquisitions, net of cash acquired

-

-

(10,215)

Restricted cash

(1,016)

1,615

(54)

Proceeds from company-owned life insurance investment

17,135

-

-

Purchase of company-owned life insurance investment

(555)

(2,543)

(2,544)

Proceeds from sale of property, plant and equipment

4,909

5,960

4,954

Other investing activities, net

-

(10)

(50)

Net cash used in investing activities - continuing operations

(1,882)

(18,602)

(40,161)

Net cash provided by investing activities - discontinued operations

-

1,425

4,987

Net cash used in investing activities

(1,882)

(17,177)

(35,174)

Cash flows from financing activities:

Borrowings under term loan

420

274,400

-

Repayment of term loan

(28,545)

(19,688)

(14,063)

Borrowings under revolving credit agreement

156,965

23,000

155,000

Repayments under revolving credit agreement

(151,965)

(155,000)

(93,000)

Payment of senior notes

-

(200,000)

-

Payment of employee taxes on stock-based compensation

(1,477)

(288)

(2,212)

Payment on seller note and other contingent consideration

(5,197)

(9,128)

(13,561)

Payment of capital lease obligations

(1,210)

(979)

(1,110)

Payment of debt issuance costs and fees

(2,863)

(15,832)

(8,340)

Net cash (used in) provided by financing activities - continuing operations

(33,872)

(103,515)

22,714

(Decrease) increase in cash and cash equivalents

(5,649)

(51,596)

47,054

Cash and cash equivalents, at beginning of year

7,157

58,753

11,699

Cash and cash equivalents, at end of year

$         1,508

$         7,157

$       58,753

Table 4

Hanger, Inc.

Segment Information: Revenue, EBITDA and Adjusted EBITDA

(dollars in thousands)

EBITDA is defined as operating income before depreciation and amortization.  Adjusted EBITDA is defined as operating income
before certain charges, impairments of intangible assets, third-party professional fees in excess of normal amounts incurred in
connection with our financial statement remediation, debt extinguishment costs, expenses associated with equity-based
compensation, severance expenses associated with significant reductions in force and expenses incurred in connection with our acquisitions.

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

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

For the Years Ended December 31,

2017

2016

2015

Net Revenue(a)

Patient Care

$     851,973

$     840,130

$     874,960

Products & Services

188,796

201,924

192,212

Net revenue

$  1,040,769

$  1,042,054

$  1,067,172

EBITDA(b)

Patient Care

$     143,781

$     117,622

$   (251,394)

Products & Services

(17,513)

(40,172)

40,655

Corporate & Other

(106,695)

(104,649)

(92,520)

EBITDA (Non-GAAP)

$       19,573

$     (27,199)

$   (303,259)

Adjusted EBITDA(b)

Patient Care

$     148,007

$     122,088

$     134,946

Products & Services

38,504

48,558

45,612

Corporate & Other

(66,908)

(62,187)

(63,401)

Adjusted EBITDA (Non-GAAP)

$     119,603

$     108,459

$     117,157

(a) Excludes intersegment revenue.

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

Table 5

Hanger, Inc.

Reconciliation of net (loss) and (loss) per share to

adjusted net income and adjusted earnings per share

(dollars in thousands, except share and per share amounts)

Earnings Per Share (or "EPS") is defined as net income divided by our diluted common shares during the applicable period.  
Adjusted EPS is defined as EPS adjusted for impairments of intangible assets, third-party professional fees in excess of normal
amounts incurred in connection with our financial statement remediation, debt extinguishment costs, severance expenses
associated with significant reductions in force and expenses incurred in connection with our acquisitions and certain other charges. 

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

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

For the Years Ended December 31,

2017

2016

2015

Net loss - as reported (GAAP)

$   (104,671)

$   (106,471)

$   (327,091)

Adjustments: 

Impairment of intangible assets

54,735

86,164

385,807

Amortization expense

9,527

13,918

13,800

Third party professional fees

32,301

37,244

23,475

Extinguishment of debt

-

6,031

7,237

Severance expenses associated with reduction in force

64

2,487

-

(Income) loss from discontinued operations before taxes

-

(1,425)

11,223

Specified adjustments prior to tax effect

$       96,627

$     144,419

$     441,542

Tax effect of specified adjustments (a)

19,981

(23,974)

(87,436)

Specified adjustments after taxes

116,608

120,445

354,106

Adjusted net income (Non-GAAP) 

$       11,937

$       13,974

$       27,015

Basic and diluted loss per share - as reported (GAAP)

$         (2.89)

$         (2.96)

$         (9.18)

Effect of above listed specified adjustments

3.22

3.35

9.94

Adjusted diluted income per share (Non-GAAP)

$           0.33

$           0.39

$           0.76

Shares used to compute adjusted diluted per common share amounts

36,566,638

36,078,719

35,739,766

(a) "Tax effect of specified adjustments" reflects the difference between the Company's effective provision for taxes and the
application of a combined federal and state statutory tax rate of 38% to the Company's earnings from continuing operations
before taxes, after the incorporation of the identified above adjustments.

Table 6

Hanger, Inc.

Reconciliation of net income (loss) to EBITDA and Adjusted EBITDA

(dollars in thousands)

EBITDA is defined as operating income before depreciation and amortization.  Adjusted EBITDA is defined as operating income
before certain charges, impairments of intangible assets, third-party professional fees in excess of normal amounts incurred in
connection with our financial statement remediation, debt extinguishment costs, expenses associated with equity-based
compensation, severance expenses associated with significant reductions in force and expenses incurred in connection with our acquisitions.

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

Neither EBITDA or Adjusted EBITDA are measures of financial performance computed in accordance with GAAP and should not be
considered in isolation nor as a substitute for operating income, net income, cash flows from operations, or other statement of
operations or cash flow data prepared in conformity with GAAP, or as a measure of profitability or liquidity.  In addition, the
calculation of EBITDA and Adjusted EBITDA is susceptible to varying interpretations and calculations, and the amounts presented
may not be comparable to similarly titled measures of other companies.  EBITDA and Adjusted EBITDA may not be indicative of
historical operating results, and we do not intend these measures to be predictive of future results of operations.

For the Years Ended December 31,

2017

2016

2015

Net loss - as reported (GAAP)

$   (104,671)

$   (106,471)

$   (327,091)

Adjustments to calculate EBITDA: 

Depreciation and amortization

39,259

44,887

46,343

Interest expense, net

57,688

45,199

29,892

Extinguishment of debt

-

6,031

7,237

Provision (benefit) for income taxes

27,297

(15,910)

(67,614)

(Income) loss from discontinued operations, net of income taxes

-

(935)

7,974

Specified adjustments - net loss to EBITDA

124,244

79,272

23,832

EBITDA (Non-GAAP)

19,573

(27,199)

(303,259)

Further adjustments to calculate Adjusted EBITDA:

Impairment of intangible assets

54,735

86,164

385,807

Third-party professional fees

32,301

37,244

23,475

Equity-based compensation

12,930

9,763

11,134

Acquisition-related expenses

-

-

-

Severance expenses associated with reduction in force

64

2,487

-

Specified further adjustments - EBITDA to Adjusted EBITDA

100,030

135,658

420,416

Adjusted EBITDA (Non-GAAP)

$     119,603

$     108,459

$     117,157

Table 7

Hanger, Inc.

Segment reconciliation of net income (loss) to EBITDA and Adjusted EBITDA

(dollars in thousands)

For the Years Ended December 31,

2017

2016

2015

Patient Care 

Net income (loss) - as reported (GAAP)

90,350

59,668

(310,745)

Adjustments to calculate EBITDA:

Depreciation and amortization

21,363

24,873

25,674

Interest expense, net

32,068

33,081

33,677

Extinguishment of debt

-

-

-

Provision (benefit) for income taxes

-

-

-

Specified adjustments - net income (loss) to EBITDA

53,431

57,954

59,351

EBITDA (Non-GAAP)

143,781

117,622

(251,394)

Further adjustments to calculate Adjusted EBITDA:

Impairment of intangible assets

-

-

382,860

Third-party professional fees

-

-

-

Equity-based compensation

4,138

2,989

3,480

Acquisition-related expenses

-

-

-

Severance expenses associated with reduction in force

88

1,477

-

Specified further adjustments - EBITDA to Adjusted EBITDA

4,226

4,466

386,340

Adjusted EBITDA (Non-GAAP)

148,007

122,088

134,946

Products & Services 

Net (loss) income - as reported (GAAP)

(40,872)

(64,869)

15,658

Adjustments to calculate EBITDA:

Depreciation and amortization

10,163

11,600

11,883

Interest expense, net

13,196

13,097

13,114

Extinguishment of debt

-

-

-

Provision (benefit) for income taxes

-

-

-

Specified adjustments - net income to EBITDA

23,359

24,697

24,997

EBITDA (Non-GAAP)

(17,513)

(40,172)

40,655

Further adjustments to calculate Adjusted EBITDA:

Impairment of intangible assets

54,735

86,164

2,947

Third-party professional fees

-

-

-

Equity-based compensation

1,306

1,556

2,010

Acquisition-related expenses

-

-

-

Severance expenses associated with reduction in force

(24)

1,010

-

Specified further adjustments - EBITDA to Adjusted EBITDA

56,017

88,730

4,957

Adjusted EBITDA (Non-GAAP)

38,504

48,558

45,612

Corporate & Other

Net loss from continuing operations - as reported (GAAP)

(154,149)

(102,205)

(24,030)

Adjustments to calculate EBITDA:

Depreciation and amortization

7,733

8,414

8,786

Interest expense, net

12,424

(979)

(16,899)

Extinguishment of debt

-

6,031

7,237

Provision (benefit) for income taxes

27,297

(15,910)

(67,614)

Specified adjustments - net loss from continuing operations to EBITDA

47,454

(2,444)

(68,490)

EBITDA (Non-GAAP)

(106,695)

(104,649)

(92,520)

Further adjustments to calculate Adjusted EBITDA:

Impairment of intangible assets

-

-

-

Third-party professional fees

32,301

37,244

23,475

Equity-based compensation

7,486

5,218

5,644

Acquisition-related expenses

-

-

-

Severance expenses associated with reduction in force

-

-

-

Specified further adjustments - EBITDA to Adjusted EBITDA

39,787

42,462

29,119

Adjusted EBITDA (Non-GAAP)

(66,908)

(62,187)

(63,401)

Adjusted EBITDA (Non-GAAP)

$     119,603

$     108,459

$     117,157

Table 8

Hanger, Inc.

Indebtedness

(dollars in thousands)

As of December 31,

2017

2016

2015

Term loan due June, 2018

$     151,875

$     180,000

$     199,688

Term loan B, due August, 2019

280,000

280,000

-

Revolving credit facility

5,000

-

132,000

Senior notes due 2018

-

-

200,000

Seller notes

5,912

11,110

19,838

Financing leases and other

18,169

18,245

21,134

Total debt before unamortized discount and debt issuance costs

460,956

489,355

572,660

Unamortized discount

(5,556)

(7,511)

(1,820)

Debt issuance costs, net

(5,136)

(9,194)

(4,407)

Total debt

$     450,264

$     472,650

$     566,433

Reported as:

Current portion of long-term debt

$         4,336

$       30,944

$       30,385

Long-term debt

445,928

441,706

536,048

Total debt

$     450,264

$     472,650

$     566,433

Table 9

Hanger, Inc.

Key Operating Metrics

As of and for the Years Ended December 31,

2017

2016

2015

Same clinic revenue growth per day (a): 

Growth rate on net revenue

2.2%

(2.4)%

5.7%

Growth rate excluding favorable effect of change in rate of
disallowances

0.8%

(3.1)%

3.1%

Clinical locations:

Patient care clinics

682

706

721

Satellite clinics

112

115

116

Total clinical locations

794

821

837

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