Hanger, Inc. (HGR)

HGR 
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Hanger Orthopedic Group, Inc. (HGR)

Q1 2009 Earnings Call

April 28, 2009 9:00 am ET

Executives

Tom Kirk - President and CEO

Ken Abod - VP, Treasurer and IR

George McHenry - EVP, CFO and Secretary

Analysts

Bryan Sekino - Barclays Capital

Larry Solow - CJS Securities

Greg Williams - Sidoti & Company

Daniel Owczarski - Avondale Partners

Michael Petusky - Noble Financial Group

Presentation

Operator

Good morning my name is Niva, and I will be your conference operator today. At this time, I would like to welcome everyone to the Hanger Orthopedic Group's First Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions)

Thank you. I will now turn the call over to Mr. Tom Kirk. Thank you.

Tom Kirk

Good morning. This is Tom Kirk, President and CEO and with me is George McHenry our Executive Vice President and CFO and Ken Abod who is our VP Treasurer and IR Director. I would like to welcome you to Hanger Orthopedic Group's discussion of our first quarter results.

Before starting the discussions let me ask Ken Abod our Treasurer and IR Director to review with you our declaration on forward-looking statements. Ken?

Ken Abod

Thanks Tom. During this call, management will make forward-looking statements relating to the company's results of operations. The 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.

Thanks. I will turn the call back over to Tom Kirk.

Tom Kirk

Thank you, Ken. Overall, I think you have seen in our press release where last evening we announced net sales of $169.1 million for the quarter which was an increase of $11.4 million or 7.3% increase from the $157.7 million in the prior year.

Just want to make some broad statements and some summary comments about the quarter, there are several noteworthy points that I would like to bring to your attention.

Our core businesses grew their sales over the first quarter of last year in spite of some challenging economic conditions and some more severe than normal weather conditions in selective parts of the country.

Their outstanding performance on sales enabled us to post $0.14 earnings per share which equates to slightly more than 17% growth over the EPS from last year's first quarter. This makes our 13th consecutive quarter where we have met or exceeded first call estimates.

We are continuing to see the benefits of the programs that we placed into operation over the last several quarters and certainly the results of our people's efforts.

Examples are more aggressive marketing program designed to position Hanger as the provider of choice in all of our business lines. We are continuing to educate our referral sources on the benefits of new products in the market. We are increasing the business that we have under contract by Linkia and we are extending the customer and product bases in our distribution business.

Last but not least, we have initiated the government and third party reimbursements for the WalkAide product. All of these things combine to make a very successful and solid quarter for us. And last but not least, our balance sheet and liquidity are strong which will enable us to execute our strategic plan without any constraints.

Now, I will it turn over to George who will review our financial results and then I will come back and have a few more words about our operations. George?

George McHenry

Thank you Tom, good morning everyone. For the quarter, sales increased by $11.4 million or 7.3% which was principally attributable to the comparable store sales growth in our patient care centers. $5.6 million or 4.1% of the sales, a $2 million increase or a 10.4% in outside sales of our distribution business, and $4.1 million of sales that are attributable to the acquired businesses.

Linkia sales increased by $1.5 million or 9.1% to $17.5 million for the quarter. They continue to be accretive to our overall sales growth and patient care.

System wide sales for WalkAide were $1.3 million for the quarter compared to $3.2 million in the prior year which benefited from the Good Morning America appearance. We did not expect the WalkAide sales in Q1 to exceed the prior year and we remain comfortable with our WalkAide sales expectations for the year which I will report on the overall sales guidance that I will discuss in a second.

Cost of materials as a percentage of sales was 13.2% which was six-tenth of a percent higher than the prior year due to a change in the mix of sales related to a combination of the SPS sales growth which was higher than the growth that we had in patient care. So that’s of course some increase in comp.

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