Hanger, Inc. (NYSE:HNGR) is a leading national provider of products and services that assist in enhancing or restoring the physical capabilities of patients with disabilities or injuries. The company operates through two segments: Patient Care and Products & Services.

Business Overview

Hanger's Patient Care segment is primarily comprised of Hanger Clinic, which specializes in comprehensive, outcomes-based design, fabrication, and delivery of custom orthotic and prosthetic (O&P) devices. The company employs approximately 1,660 certified clinicians who provide services through 761 patient care clinics and 117 satellite locations across 48 states, the District of Columbia, and the U.S. Virgin Islands. Hanger also provides payor network contracting services to independent O&P providers through this segment.

The company's Products & Services segment is comprised of its distribution services and therapeutic solutions businesses. As a leading provider of O&P products in the United States, Hanger engages in the distribution of a broad catalog of branded and private label O&P devices, products, and components to independent O&P providers nationwide. The therapeutic solutions business develops specialized rehabilitation technologies and provides evidence-based clinical programs for post-acute rehabilitation to patients at approximately 3,800 skilled nursing and post-acute providers nationwide.

Financials

For the full year 2022, Hanger reported net revenues of $1,120,488,000, an increase of 10.6% compared to the prior year. Net income for the year was $41,982,000, and the company generated $36,210,000 in operating cash flow and $13,631,000 in free cash flow.

In the third quarter of 2022, the company reported net revenues of $287,524,000, an increase of 8.1% compared to the same period in 2021. Net income for the quarter was $10,117,000, and the company generated $20,787,000 in operating cash flow and $5,991,000 in free cash flow.

For the first nine months of 2022, Hanger reported net revenues of $860,844,000, an increase of 10.4% compared to the same period in 2021. Net income for the nine-month period was $32,257,000, and the company generated $51,732,000 in operating cash flow and $7,640,000 in free cash flow.

Segment Performance

In the Patient Care segment, net revenues for the full year 2022 were $932,988,000, an increase of 12.3% compared to the prior year. This growth was driven by a 6.5% increase in same-clinic revenues on a per-day basis, as well as $24.9 million in net revenues from acquired clinics. Prosthetics accounted for approximately 53.7% of Patient Care segment revenues, with prosthetic revenues increasing 8.4% on a per-day basis, excluding the impact of acquisitions. Orthotics, shoes, inserts, and other products increased 4.3% on a per-day basis, excluding acquisitions.

The Products & Services segment reported net revenues of $187,500,000 for the full year 2022, an increase of 2.3% compared to the prior year. This was primarily attributable to a 5.4% increase in the distribution of O&P componentry to independent providers, partially offset by a 6.5% decrease in net revenues from the therapeutic solutions business due to historical customer lease cancellations and discounts.

Liquidity

As of September 30, 2022, Hanger had $24,380,000 in cash and cash equivalents and $129,800,000 in available borrowing capacity under its $135,000,000 revolving credit facility, providing total liquidity of $154,180,000. The company's working capital was $52,351,000, and its days sales outstanding was 49.5 days.

Hanger has a Senior Credit Facility that provides for a $449,800,000 Term Loan B facility and a $135,000,000 revolving credit facility. As of September 30, 2022, the company had $449,800,000 outstanding under the Term Loan B facility and $5,200,000 in outstanding letters of credit, resulting in $129,800,000 in available borrowing capacity under the revolving credit facility.

The company was in compliance with all covenants under its Credit Agreement as of September 30, 2022. Hanger's primary future cash requirements will be for acquisitions, debt payments, capital expenditures, and to fund operations.

Acquisitions and Growth Initiatives

During 2022, Hanger completed the acquisitions of five O&P clinics for a total consideration of $24,800,000, with the intention of expanding the geographic footprint of its patient care offerings. The company also completed two additional O&P clinic acquisitions in the third quarter of 2022 for a total consideration of $8,100,000.

Hanger continues to pursue acquisitions and other growth initiatives that it expects will provide value to shareholders. The company has also invested in capital expenditures and deferred cloud implementation expenditures related to the reconfiguration of its distribution facilities and the implementation of new supply chain and financial systems.

Risks and Challenges

Hanger operates in a highly regulated industry and is subject to various Medicare compliance audits, including Recovery Audit Contractor (RAC) audits, Comprehensive Error Rate Testing (CERT) audits, Targeted Probe and Educate (TPE) audits, Supplemental Medical Review Contractor (SMRC) audits, and Unified Program Integrity Contractor (UPIC) audits. Adverse audit determinations can require the company to reimburse Medicare for previous payments, which can have a material adverse effect on its financial condition and results of operations.

The company also faces challenges in recruiting and retaining personnel, particularly in clinic front office administrative, distribution center, and fabrication center technician positions. Hanger's inability to successfully recruit and maintain staffing levels for these positions has introduced constraints on its ability to achieve revenue growth objectives.

Additionally, the company's results of operations have been and may continue to be adversely affected by the COVID-19 pandemic, which has impacted patient volumes and employee absences. While the overall adverse impact of the pandemic on Hanger's business has diminished and stabilized over time, the duration and extent of its future effects remain uncertain.

Outlook

For the full year 2022, Hanger provided the following guidance: - Net revenues in the range of $1,110,000,000 to $1,130,000,000 - Net income in the range of $40,000,000 to $43,000,000 - Operating cash flow in the range of $55,000,000 to $65,000,000 - Free cash flow in the range of $10,000,000 to $15,000,000

The company's guidance reflects its expectations for continued growth in its Patient Care segment, driven by same-clinic revenue increases and contributions from recent acquisitions, as well as stable performance in its Products & Services segment.

Conclusion

Hanger, Inc. is a leading provider of orthotic and prosthetic solutions, operating through its Patient Care and Products & Services segments. The company has demonstrated strong financial performance, with double-digit revenue growth and healthy profitability in 2022. Hanger continues to execute on its growth strategy through strategic acquisitions and investments in its operations, while navigating industry challenges and the ongoing effects of the COVID-19 pandemic. With its strong market position, diversified business model, and focus on innovation, Hanger appears well-positioned to capitalize on the growing demand for its products and services.