Hanger Orthopedic Group Inc. announced net sales of $193.5 million for the quarter ended June 30, an increase of $12.3 million, or 6.8%, from $181.2 million in the prior year. Net income increased $2 million, or 25.4%, to $10 million in the second quarter of 2009 from $8 million last year. Earnings per share for the second quarter of 2009 were $0.31 per diluted share compared to pro forma earnings per share for the same period in 2008 of $0.25 per diluted share, a 24% increase.
The pro forma diluted EPS for the second quarter 2008 assume that a one-time, in-kind preferred stock dividend occurred and the preferred stock was converted to common stock at the beginning of the period. Earnings per share for the quarter ended June 30, 2008 on a GAAP basis was $0.11 per diluted share.
The $12.3 million, or 6.8%, sales growth for the quarter ended June 30 was primarily the result of a $6.9 million, or 4.4%, increase in same-center sales in our patient care centers, a $0.9 million, or 4.2%, increase in sales of the company’ s distribution segment and a $4.3 million increase related to sales from acquired entities.
Cost of materials increased $3.6 million, or 6.5%, to $58.8 million in the second quarter of 2009 compared to the same quarter last year principally due to the sales increase. Cost of materials as a percentage of sales decreased to 30.4% for the second quarter of 2009 compared to 30.5% for the second quarter of 2008.
Personnel costs increased $4.2 million, or 6.8%, in the second quarter of 2009 compared to the second quarter of 2008. Contributing to this increase were personnel costs of $1.7 million from acquisitions, additional stock and severance compensation of $1.3 million and other increases of $1.2 million.
Other operating costs increased $2.3 million, or 5.9%, in the second quarter of 2009 over the same quarter in the prior year due to additional variable compensation accruals of $2 million, higher occupancy costs of $0.3 million, other operating costs of acquisitions of $0.4 million and additional bad debt expense of $0.9 million, offset by lower professional fees of $0.9 million and $0.4 million of reductions in other overhead costs. As a percentage of sales other operating costs decreased by 20 basis points compared to the second quarter of last year.
Interest expense for the second quarter of 2009 was $0.5 million less than the same period of last year due to lower variable interest rates.
Net sales for the 6 months ended June 30 increased by $23.9 million, or 7%, to $362.7 million from $338.8 million in the same period last year. The sales growth was principally the result of a $13.1 million, or 4.4%, increase in same-center sales in our patient care centers, a $2.9 million, or 7.1%, increase in sales of the company’ s distribution segment and a $7.9 million increase related to sales from acquired entities.
Cost of materials increased $7.9 million, or 7.7%, to $109.9 million in the six months ended June 30, compared to the same quarter last year principally due to the sales increase. Cost of materials as a percentage of sales increased by 20 basis points to 30.3% for the first half of 2009 compared to 30.1% for the first half of 2008.
Personnel costs increased by $7.9 million, or 6.5%, for the first half of 2009 compared to the same period in 2008. Contributing to this increase were personnel costs of $3.2 million related to acquisitions, additional stock and severance compensation of $1.8 million and other increases of $2.9 million. As a percentage of sales, personnel costs decreased by 20 basis points compared to the comparable half of the prior year.
Other operating costs increased $4.5 million, or 6.4%, in the first six months of the 2009 over the same period in the prior year due to additional variable compensation accruals of $4 million, higher occupancy costs of $1.2 million, other operating costs of acquisitions of $1 million and additional bad debt expense of $1 million, offset by lower advertising costs of $1.2 million and $1.5 million of reductions in other overhead costs. As a percentage of sales, other operating costs decreased by 10 basis points compared to last year’ s second quarter.
Interest expense for the six months ended June 30 was $1.1 million less than the same period of last year due to lower variable interest rates.
Net income applicable to common stock for the six months ended June 30 increased by 25.8% to $14.6 million, or $0.46 per diluted share, compared to pro forma net income applicable to common stock of $11.6 million, or $0.37 per diluted share, in the prior year. The pro forma results for the six months ended June 30, 2008 assume that the previously described one-time, in-kind preferred stock dividend occurred and the preferred stock was converted to common stock at the beginning of the period. Net income applicable to common stock for the six months ended June 30, 2008 on a GAAP basis was $5.9 million, or $0.24 per diluted share.
Cash from operations increased by $4.5 million, or 22.2%, to $24.5 million in the second quarter of 2009, compared to the same quarter in 2008. The improvement was primarily the result of improved operating results and a $2.7 million decrease in working capital offset by a $0.3 million decrease in non-cash items. Days sales outstanding were reduced by 4 days to 48 days as of June 30 from 52 days as of June 30, 2008, a record low for the company.
As of June 30, $91.9 million, or 21.6%, of the company’ s total debt of $426.4 million was subject to variable interest rates. The company had total liquidity of $114.1 million, comprised of $76.4 million of cash and $37.7 million available under its revolving credit facility at June 30. On July 15, the company repaid the $15.3 million outstanding balance on its revolving credit facility. The company believes that it has sufficient liquidity to conduct its normal operations and fund its acquisition plan in 2009.
The company is confirming its full year 2009 sales guidance of $750 to $760 million and is increasing its 2009 diluted EPS guidance by $0.06 to a range of $1.02 to $1.04.
“We are extremely pleased with our second quarter results as they exceeded our expectations and represent sound operational execution, particularly in this economic environment,” Thomas F. Kirk, president and chief executive officer of Hanger Orthopedic Group, said in a news release. “Our patient care centers growth of 4.4% continues to be a key driver of our revenues. Combined with our expense management efforts we have improved operating margins for the quarter by 70 basis points to 12.5% since the second quarter of last year. We move to the second half of the year in solid financial shape and focused on executing our business opportunities.”
