Hanger, Inc.

Hello and welcome to Hanger's fourth quarter and year-end 2021 earnings conference call. My name is Adam and I'll be coordinating the call today. If you'd like to ask a question during the Q&A portion of the call, please press star followed by one on your telephone keypad. I will now hand over to our host, Kevin Ehrlich, Managing Director at ICR Westwick to begin. So Kevin, please go ahead when you are ready.

Good morning and welcome to Hanger's fourth quarter and year-end 2021 earnings conference call. With us today are Vinith, Arthur, Hanger's President and Chief Executive Officer, and Thomas Kurali, Executive Vice President and Chief Financial Officer. Some of the information discussed today will include forward-looking statements 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 other things, Matters we have identified in the forward-looking statements portion of our latest earnings release and in our filings with the FEC. Hanger disclaims any obligation to update forward-looking information discussed on this call. And now, I'll hand the call over to Vinic.

Thank you, Kevin. Good morning, and thank you all for joining Hanger's fourth quarter and full year 2021 earnings call. Joining me in today's call is Tom Karawi, Hanger's Chief Financial Officer. This morning, I will provide high-level thoughts on our fourth quarter and full year 2021 results, including some of our operational highlights and ongoing strategic initiatives. I will also discuss the current operating environment and touch on our outlook for 2022 before I pass the call to Tom, who will provide details on our financial results for last year and our guidance for this year. Yesterday after the close, we reported fourth quarter revenue of $312.4 million, which increased 12.6% and adjusted EBITDA of $37.2 million, which increased 4.9% over the prior year period. These results were consistent with our free announcement on February 7th. Although revenue for the quarter grew nicely on a year-over-year basis, our results were negatively impacted by the spike in COVID infections driven by the Omicron variant during December. For those of you who have followed us for a long time, you know the importance of the last few weeks of the year. We experienced seasonality in our operations and increased volume in our clinics towards the end of the calendar year, which we believe is due to patients reaching annual deductibles as they approach the conclusion of their benefits year. This generally results in the month of December and fourth quarter being our largest period this year for both revenue and adjusted EBITDA. Not only did Omicron adversely affect referrals and patient visits during the latter part of the fourth quarter, but we also experienced a significant increase in sick leave by our employees who were infected. The safety of our employees and patients are our priority. And unfortunately, the number of increased infections due to Omicron had a negative impact on our ability to deliver on our 2021 earnings guidance. We saw some continuation into the early part of the new year, but it appears the number of cases related to the Omicron variant are normalizing, and we believe that the worst is behind us. Our business has also been impacted by cost pressures, inflation, and the labor shortage that has affected the U.S. economy generally, really more in the second half of 2021. which resulted in wage pressure, especially in certain job roles such as our administrative and technical areas. With that being said, the results from our two business segments had some bright spots. Patient care revenue increased 14.4% year over year during the fourth quarter, and it grew 13.4% for the full year. Same clinic revenue increased 5.8% and 9.1% for fourth quarter and full year 2021 respectively compared to the same periods of the prior year. Turning to our products and services segment, fourth quarter 2021 revenue increased 3.2% year over year and 4.5% for the full year compared to 2020. A couple of things to highlight for our products and services segment. First, the team has done a nice job growing its business with the Department of Defense and the VA. Sales of new products we added to our distribution business in 2021 contributed $3.6 million of additional revenue year over year, despite COVID and a challenging operating environment. Overall for Hanger, while our full year results were clearly affected by COVID, we were still able to grow our revenues by 12% and adjusted EBITDA by 13%. Now, despite the challenges posed by COVID in the last couple of years, I'd like to take a moment to put the progress we have made at Hanger in perspective. During the last three years, we have increased our footprint from 780 to 875 clinic locations. With the recent clinic addition in Alaska, we now serve patients in 47 out of 50 states plus Washington, D.C. Currently, we believe that one out of every four O&P patients in the United States seek care at a Hanger facility. which is an improvement from one out of every five patients a few years ago. Over the last couple of years, we have added dynamic leaders like Pete Stoi, our chief operating officer, to our leadership ranks. Pete and his team have been keenly focused on market-based growth strategies that will help drive continued growth and organic share gains in the patient care segment. Our investments in infrastructure spanning our EHR system and our ERP system. Combined with the strength of our revenue cycle and supply chain enhancements have positioned us well to continue to scale this growing business in the coming years. As I told our employees, the pandemic has set us back on our growth plans only in terms of timing and not in terms of realizing the true potential of our business model and growth plans. While we have encountered some near-term challenges primarily due to external factors like Omicron, and the inflationary environment, I want to talk about some of our accomplishments for 2021. First, we went live with our state-of-the-art 150,000 square foot distribution center in Alvareta, Georgia, which will enhance the in-stock availability of componentry and reduce delivery times in the eastern half of the country. The expansion of our distribution capabilities in Georgia has also allowed for the consolidation of the number of distribution centers from five to two by mid-year 2022, which is in line with the long-term supply chain strategy we had previously outlined. I also want to commend our supply chain and fabrication teams who demonstrated incredible resolve during the fourth quarter, making sure we had adequate inventory and substantially on-time deliveries despite the worldwide supply chain interruptions. We successfully implemented the financial module of our ERP with the move to an Oracle cloud-based system. It was a seamless transition with no disruptions, which is a testament to our finance and IT teams and all those involved in the implementation. Third, in November, we fortified our balance sheet by refinancing our revolver, resulting in a greater capacity, a lower interest rate, and an extended maturity. Given the inflationary and rising interest rate environment, it was timely and a great move by Tom and the finance team. Lastly, our acquisition pipeline remains robust. We acquired eight independent ONC businesses during the fourth quarter and, as a result, continue to welcome high-level clinical and management talent into Hanger. Our M&A pipeline remains active, and we will continue to deploy capital to grow and add to our business supplementing our organic growth efforts. In addition to these 2021 accomplishments, we have been pushing a few strategic initiatives that will further support our growth plans. Beginning with our pediatric strategy, Dr. Jim Campbell, Pete Stoy, and their teams have started to implement a highly effective network approach for our pediatric cranial patients and their families. This is the first step in ensuring we drive growth in this area. while enhancing the care provided to these children. This initial focus on our cranial patients, which began earlier in 2021, has clearly demonstrated strong results that we are building on as part of an overall pediatric strategy. Another strategic initiative I want to highlight is our partnership with Zimmer Biomed. This small pilot program using Zimmer Biomed's MyMobility platform links with a personal device to provide targeted education, exercise guidance, and insights into daily activities for our prosthetic patients. There is a lot we can learn by collecting data in this manner to improve outcomes for our patients. Speaking of data, every healthcare company is now a data repository of sorts. As such, our clinical outcomes programs and data strategy are increasingly informing our business model and care pathways. As an example, Hanger recently published the SafeAMP manuscript in the Journal of Assistive Technology. The insight from this analysis provides guidance on the appropriateness for providing microprocessor needs to patients with diabetes, mitigating the cost associated with injurious falls that are more likely to occur when patients are fit with a non-microprocessor need. In a separate study, our research confirmed that individuals who received a prosthesis earlier post-amputation had significantly lower total healthcare costs compared to those with no prosthesis within 12 months of amputation. Additionally, early receipt of a prosthesis following amputation results in reduced healthcare utilization, noting specifically the odds of ER department visits are reduced by 32%. It is these types of findings that we are using to communicate with payers and referral sources to further validate the need for outcomes-driven care and appropriate reimbursement. As a result of our efforts in recent years, we believe Hanger is now in the unique position of having the largest clinical outcomes database for prosthetic patients in the world. Our intent at Hanger is to use data to drive actions which lead to better clinical outcomes more efficient care delivery, and lower healthcare costs. We continue to be encouraged by the progress we are making. Before I provide some high-level thoughts on our 2022 outlook, I want to applaud our team for weathering another year of the COVID storm. It has been a challenge, and the team has sacrificed and risen to the occasion. While 2021 wasn't exactly what we expected nor wanted to be, we were able to continue to make investments in areas that will help lay the foundation for years to come. I believe 2022 will be a year for Hanger to begin to show its true potential. With our pre-announcement on February 7, we introduced 2022 revenue guidance, which represents 6% to 9% year-over-year growth, while our adjusted EBITDA guidance represents 7% to 11% growth over 2021. We expect same clinic growth in our patient care segment to be approximately 5%. Given the current operating environment, coupled with cost pressures, inflation, and labor issues, we believe this to be a prudent outlook for the year. Tom will provide more details on our 2022 guidance shortly. In closing, before I turn the call over to Tom to discuss our financial results, I want to thank our entire organization for their effort, dedication, and sacrifices to generate these financial results. In early February of this year, Hanger was named Forbes List of Best Midsize Employers. This is a great accomplishment for our company and illustrates the commitment and dedication of the entire organization. Although 2021 didn't quite play out as we expected, I am appreciative and truly amazed by the things we accomplished during the second year of this pandemic. We continued to strengthen the foundation for Hanger through hard work and focus, coupled with investments that strategically position us to gain share and provide the highest quality care for our patients and customers. Now is the time to focus forward, and I truly believe that we can begin to unleash the full potential for Hanger in 2022. I want to thank everyone on the call for your continued interest in Hanger. And with that, I'll turn the call over to Tom, who will provide more details on our financial results and guidance. Tom?