Hanger Orthopedic Group, Inc. (HGR)
Q4 2008 Earnings Call
February 11, 2009 09:00 AM ET
Thomas F. Kirk Ph.D - President and Chief Executive Officer
George E. McHenry - Executive Vice President, Chief Financial Officer and Secretary
Adam Feinstein - Barclays Capital
Lawrence Solow - CJS Securities
Greg Williams - Sidoti & Company
Daniel Owczarski - Avondale Partners
Michael Petusky - Noble Financial Group
Previous Statements by HGR
» Hanger Orthopedic Group, Inc., Q1 2009 Earnings Call Transcript
» Hanger Orthopedic Group Inc. Q3 2008 Earnings Call Transcript
» Hanger Orthopedic Group, Inc. Q2 2008 Earnings Call Transcript
Thank you Mr. Kirk, you may begin your conference.
Thomas F. Kirk Ph.D
Thank you, Jackie. Good morning to all and welcome to Hanger Orthopedic Group's discussion of our fourth quarter results.
Before starting, let me take a few moments to review with you our declaration on forward-looking statements. During this call, Management will make forward-looking statements relating the company's results of operations. United States Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for certain forward-looking statements. Statements relating to future results of operations in this document reflect the views of Management.
However, various risks, uncertainties and contingencies could cause actual results or performance to differ materially from those expressed in or implied by these statements, including the company's ability to enter into and derive benefits from managed care contracts, the demands for the company's orthotic and prosthetic services and products, and the other factors identified in the company's periodic reports on Form 10-K and Form 10-Q, filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934.
The company disclaims any intent or obligation to update publicly these forward-looking statements whether as a result of new information, future events or otherwise.
And with me this morning I have George McHenry, Executive Vice President and Chief Financial Officer and Ken Abod, Vice President and Treasure and Director of Investor Relations.
So, this morning I will open things up with a few general comments and then we'll ask George to review the details of our financial results, and then I'll come back on and give you a little color on some of the business in our operations.
From an overall perspective, the quarter contained several noteworthy points. All of our business grew their sales over the fourth quarter of last year, thereby enabling us to have a solid quarter and to grow our pro forma earnings by almost 26%, compared to the comparable quarter last year. This makes it 12th quarter where we have met or exceeded first call estimates.
We continue to see the benefits of the programs we placed into operation over the last several quarters and the results of our people's efforts. Examples are the progression of the high tech products in our patient care business, the extension of the customer and product basis in our distribution business, increases in volume and pricing within the Linkia book of business, and a reversal of a non-coverage decision for our WalkAide product. Our balance sheet and liquidity are strong, enabling us to execute our strategic plans without any constraints.
Now I'll turn it over to George, who will review our financial results and balance sheet changes in detail.
George E. McHenry
Good morning, everyone. Thank you, Tom. As Tom mentioned, Q4 was another solid quarter for the company. We reported pro forma EPS of $0.26 on an 8.6% increase in sales, 29.4% increase in pre-tax income and 12.2% increase in net income. Keep in mind last year's Q4 tax rate was only 30% compared to 39% this year due to a one-time benefit. So our earnings were linear with the pre-tax income when you take that out.
Pro forma EPS for the year was $0.86, a 34.4% increase compared to $0.64 last year.
Now I'll move on to my detailed comments, first on the quarter. Our sales increased by 14.7 million or 8.6%. Our patient care centers had another great quarter reporting same-center sales increase of 6.1% or $9.2 million for the quarter. SPS also had a strong quarter, reporting a $2 million or 11% increase.
The balance of our sales increase came from acquired entities, which accounted for a $3.5 million increase.
Cost of goods sold as a percentage of sales, increased by 2.9% to 47.7% due to the favorable impact of the inventory adjustment on the prior year's cost. Labor cost increased by 1.5 million in the quarter, principally due to the impact of merit increases and acquisitions but showed good leverage as it decreased as a percentage of sales by 0.7.
Material cost increased by 10.5 million or 3.6% as a percentage of sales. The $14.7 million sales increase, accounted for 4.4 million of the increase. The distribution sales increase, accounted for 1 million of the increase and the balance was due to the $4.2 million of favorable inventory adjustment last year compared to a pick-up of 800,000 this year.
Our material rate is comparable to the last year when you factor in that difference in the inventory adjustment year-over-year.
SG&A of $70.8 million, didn't change from a year ago despite of a $1.3 million increase attributable to acquisitions. As a percentage of sales, SG&A declined by 3.4% to 38.1% from 41.5% in 2007.
EBITDA at 26.3 million increased by 2.8 million or 11.9% compared to the prior year due to the factors I just mentioned. Our EBITDA margins increased by 40 basis points from 13.8% to 14.2% this year despite that 2.9% impact of the inventory adjustment I just mentioned. When you exclude the material cost change, we increased our leverage by almost 400 basis points this year, so we did a commendable job of controlling expenses.
Our interest was $1 million less than last year due principally to the impact of lower variable interest rates. Our total leverage is calculated under the terms of our loan agreement; now stand at 3.55 times our trailing EBITDA, which is the lowest leverage we've had since the Norbert Care (ph) acquisition almost ten years ago.
Our income tax provision for the quarter was 39.4% of pre-tax, which is consistent with prior quarters, and based on that our EPS was $0.26 compared to $0.23 last year, a 13% increase.
For the year, our sales increased by 65.7 million or 10.3%. Comp sales and patient care increased 7.3% or 41.3 million for the year. SPS's outside sales increased by 11.5 million or 19.1%. And acquisitions accounted for $11.9 million, which rounds up the balance of the increase.