Hanger, Inc.

Greetings and welcome to Hanger's fourth quarter 2020 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. As a reminder, this conference is being recorded. Today we will have prepared remarks followed by a Q&A period. Instructions for questions and answers will be provided after the formal presentation. It is now my pleasure to introduce your host, Seth Frank, Vice President of Treasury and Investor Relations. Please go ahead.

Seth Frank Good morning and thank you. Welcome to Hanger's fourth quarter 2020 earnings conference call. With us today are Vendor Officer, Hanger's President and Chief Executive Officer, and Thomas Crowley, Executive Vice President and Chief Financial Officer. Some of the information discussed today will include forward-looking information in the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause Hanger's actual results to materially differ from those we discussed today. Those risks include, among others, matters we have identified in the forward-looking statement portion of our latest earnings release and in our filings with the SEC. Hanger disclaims any obligation to update forward-looking information discussed on this call. And now, let's hand the call over to Vinik.

Thanks, Seth, and good morning. Thank you all for joining Hanger's fourth quarter and full year 2020 earnings call. I hope you and yours are staying safe and healthy. We were pleased with our results in Q4. The resilience and determination of the communities we serve, as well as the tenacity of our Hanger nationwide organization, to meet the continuing needs of our patients and customers were significant factors in our success, despite the national surge in COVID-19 cases in the fourth quarter. That said, COVID-19 continues to challenge our industry. We believe that a cohort of patients particularly those most vulnerable to the virus, such as the elderly and those with chronic health issues, may be delaying certain aspects of their orthotic and prosthetic care in deference to social distancing and other life priorities. So while we are pleased with our achievements, we remain cautious in the near term until key public health considerations become clearer. Looking at our overall fourth quarter results, net revenue totaled $277.3 million, a decrease of 7.8% compared to the same period of 2019. Adjusted EBITDA was $35.5 million. These results are notable, particularly in light of the fact that we made the critical decision to bring back the organization to pre-pandemic staffing levels essentially intact. In October, we fully normalized base salaries, eliminated furloughs, and returned hourly employees to full-time schedules. We took these actions because we remain convinced of the temporary nature of the pandemic-related business downturn. From a cash perspective, the results are quite remarkable. Across the entire company, we continue to make excellent progress on cash collections and managing our working capital needs. Looking at our business segments, In patient care, appointment volumes for Q4 were at 88% of the same period last year. This is an improvement compared to the 84% in the third quarter. So there is a recovery in place that did not go backwards despite the resurgence of infections during the quarter. From our perspective, O&P patients most vulnerable to a poor COVID outcome continue to be the most impacted by surges in infection rates and intensity of disease. Typically, these individuals suffer from chronic illnesses including diabetes. In general, it appears these are the patients that are currently more reticent to come in for care. Conversely, the less vulnerable and higher mobility patients needing higher technology prosthetic and orthotic devices were less impacted and constituted more of the patient encounters during the fourth quarter. Prosthetic volumes overall did improve modestly from third quarter levels. driving a sequential improvement in segment revenue excluding acquisitions. When compared to the fourth quarter 2019, prosthetics declined approximately 12%, driven primarily by lower mobility device volumes. Orthotic revenues continued to firm up as the year went on, and this was true in Q4. Orthotic revenues declined 8%, an improvement from third quarter levels. Customer orthotics performed relatively well, while off-the-shelf orthotics and shoes declined more than the category average. The products and services segment performed well in the fourth quarter, as prior investments, emerging strategic initiatives, and the strength of our leadership all came together. Our enhanced value proposition and our ability to provide greater efficiencies to our core customers among the independent ONP providers and skilled nursing facilities drove these results. COVID-19 continued to create business challenges in products and services during 2020. For the fourth quarter, segment net revenues declined 7.2%, an improvement compared to the 9.7% decline in the third quarter, while adjusted EBITDA actually grew by a million dollars year over year, a notable achievement for our team. Hanger's O&P distribution business continued to expand partnerships with large and small manufacturers, adding SKUs to our catalog and providing a unique one-stop shopping destination for independent O&P practices. The business has also positioned itself well as an essential partner for manufacturers seeking to maximize their impact with these independent O&P clinics. Our therapeutic solution subsidiary is also pivoting during COVID. skilled nursing facilities remain challenged, protecting their highly vulnerable populations, resulting in access to decision makers being temporarily hampered. We pivoted to remote teaching and education for therapists, which has allowed us to ensure patients get access to the best possible rehabilitative services. As I consider the results we achieved in 2020, they are, in retrospect, truly remarkable. COVID has been, I hope, a once-in-a-lifetime merciless adversary. It has brought unspeakable loss and suffering that would bring anyone to their breaking point. As if this was not enough, the economic and social hardships brought by this pandemic have been difficult to fathom. And of course, this all occurred against a backdrop in the U.S. of historic social unrest. The tale of 2020, where it began How we ended the year and the manner in which we carry ourselves forward was a result, I believe, of the culture, values, and purpose that Hanger employees bring to their professional lives every day. In addition, for years we have executed on a comprehensive investment plan focused on differentiation. We have built clinical and business technology to support our teams, enabling them to increase their focus on patient care. This past year, we quickly innovated and adapted to remote work environments, incorporating PPE requirements and enhanced safety protocols in every clinic and office locations and countless other challenges. And this was done, I would remind you, while the entire workforce endured the challenges of a painful but necessary reduction in compensation. I know we did the right thing because we made a collective sacrifice under a common bond of understanding that we would come out of this on the other side together, intact and stronger. I could not be more proud of every one of our employees and I thank them again for their commitment, leadership and sacrifice. So by no means were we lucky. We made good investments and wise decisions and thus our strength as an organization today is better than it has ever been based on our financials, corporate reputation, and quality of care we provide. For 2020, our net promoter score within patient care, a key process indicator for the company, improved from 84 at the end of 2019 to 86. In contrast, our analysis of HCAHPS survey data from CMS of nearly 2,700 hospitals surveyed for 2020 showed a meaningful decline in NPS across a majority of facilities. This is understandable given the strains and demands of frontline workers doing their best under sometimes impossible conditions. That said, we take it as a point of pride that patient satisfaction improved at Hanger this past year. I believe the key reason for our continued upward trajectory is the commitment Hanger has made to our patients, referral partners, and payers around evidence-driven care models and outcomes research. We could have sidelined this agenda in 2020, but instead we doubled down. The pandemic showed us what we have always known, that the rehabilitation-based medical services we provide, enabling mobility and human potential, are absolutely essential, and that O&P is a must-have, not a nice-to-have, in the healthcare value equation. Our virtual classroom programs enrolled over 5,000 attendees from over 460 healthcare organizations. in order to ensure that our greater medical community, including our referral partners, stayed connected and engaged. Our investments in people are the most important allocations of capital we have. I was delighted on the heels of all we went through in 2020 that Hanger was recognized as one of America's best mid-sized employers in 2021 by Forbes magazine. Hanger was selected through an independent nationwide survey of more than 50,000 American employees working for mid-sized to large-sized companies. This is a great way to start the year. Looking at 2021, we have a clear and focused set of priorities intended to build on these core strengths that will propel us to growth this year and in the years ahead. Our multi-year growth strategy consists of four pillars, ensuring we are the employer of choice in our industry, providing outcomes-based clinical care, and improving the ease of doing business with us, all intended to achieve the fourth pillar, accelerating growth. In addition, during 2020, we implemented multiple programs to further enhance our commitment to diversity and inclusion. We initiated our corporate D&I pledge that includes a commitment to implementing a D&I employee council chaired by myself, as well as affinity groups and awareness networks for underrepresented populations to lift up our organization and support the communities we represent and serve. These programs are already underway. Hanger has also contributed funds to the Hanger Foundation, a 501 organization funded by Hanger, its employees, and other partners. The Foundation announced the creation of the Hanger Foundation Diversity Scholarship Program to do its part to create a more inclusive O&P profession by attracting more diverse candidates to O&P graduate programs. Accelerating growth is where all of this comes together in the form of greater organic and inorganic opportunities. We continue to be encouraged that our differentiators focused on clinical outcomes and patient engagement, The strength of our relationships with our referral sources, payers, and customers, combined with the exceptional clinical talent we have assembled, has positioned us well. I expect that in 2021, we will continue to deploy capital towards our M&A program, targeting strategic acquisitions of O&P clinics. I was delighted by the successful Midwest acquisition of one of the best-known players in the private, independent O&P world during 2020. This transaction and others like it will pay significant dividends to further our growth beyond what we generate internally. During the last 12 months, we've acquired nine independent ONP businesses of varying sizes and are very pleased with the teams that have joined us as a result. As you can see, we are excited about Hanger's future and are grateful that we've been able to manage through the pandemic safely while further strengthening our commitment of empowering human potential together. Tom will now provide you more specific details on the numbers. Tom?