Hanger Announces 1Q Earnings

Hanger Orthopedic Group Inc., Bethesda, Maryland, announced net income of $3.6 million, or 12 cents per diluted share, for the quarter ended March 31, 2008, a 100-percent increase compared to net income of $1.8 million, or six cents per share in the first quarter of 2007. The company is also increasing its earnings per share (EPS) guidance by five cents per diluted share to a range of 75-77 cents per diluted share for the full year ending December 31, 2008, due to a more favorable interest rate environment.

According to the company, net sales for the quarter ended March 31, 2008, increased by $13.8 million, or 9.6 percent, to $157.7 million from $143.9 million in the prior year's comparable quarter. The sales growth was primarily the result of a $5.5 million, or 4.2 percent, increase in same-center sales in its patient care business, a $3.4 million, or 25.7 percent, increase in outside sales of its distribution business and $4.9 million associated with acquisitions. Gross profit for the first quarter of 2008 increased by $7.3 million to $78.6 million, or 49.9 percent of net sales, compared to $71.3 million, or 49.6 percent of net sales, in comparable quarter of the prior year. The increase in gross profit was due principally to the sales increase, and a three-tenths of a percent improvement in gross margin was due to improved leverage of the company's labor force.

Income from operations was $14.2 million in the first quarter of 2008 compared to $12.4 million in the first quarter of 2007, a $1.8 million increase, primarily due to the aforementioned increase in gross profit. Selling, general, and administrative expenses increased by $5 million, but decreased by two-tenths of a percent as a percentage of net sales as Hanger improved the leverage of its fixed expenses. The increase in selling, general, and administrative expense was due principally to $1.8 million in expenses related to acquisitions, a $1.4 million increase in the investment in our growth strategies, the balance of $1.8 million was due to a combination of merit salary increases, the impact of inflation on the company's fixed expenses such as rent and additional overhead to support its increased sales.

Interest expense was $1.1 million less than in the prior year due principally to lower variable rates. As a result of these changes, net income for the first quarter of 2008 was $3.6 million, or 12 cents per share, a 100-percent improvement compared to the prior year's net income of $1.8 million or six cents per share.

Cash flow used in operations was $7.5 million in the first quarter of 2008, compared to the prior year's cash flow provided by operations of $2.2 million. The $9.7 million decrease in cash flow from operations was principally due to an $11.3 million change in cash payment related to the 2007 incentive compensation plans. The year-end payout increased due to a combination of the elimination of two interim payments on the practitioners' incentive compensation plan and improved performance in 2007.

"We are pleased to report continued solid financial performance that represents the ninth consecutive quarter in which we have met or exceeded 'first call' consensus estimates," Hanger President and CEO Thomas Kirk said. "The sales and operating results of our core units continue to build even during our seasonally weaker first quarter. We improved our operating income by 14.5 percent and, more importantly, slowed the growth of our selling, general, and administrative expenses, which helped us to increase our operating margins from 8.6 percent in 2007 to 9 percent this year. We will continue to pay particular attention to our expenses this year as we look to realize additional leverage from our infrastructure."