Investor Presentation March 2019
Cautionary Note Forward Looking Statements This presentation contains certain “forward-looking statements” relating to the Company. All statements, other than statements of historical fact included herein, are “forward-looking statements.” These forward-looking statements are often identified by the use of forward-looking terminology such as “preliminary,” “intends,” “expects,” “plans,” “anticipates,” “believes,” “views” or similar expressions and involve known and unknown risks and uncertainties. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks, and uncertainties, and these expectations may prove to be incorrect. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this presentation. The Company disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. These uncertainties include, but are not limited to, the risk of our identified material weaknesses in our internal control over financial reporting adversely affecting our ability to report our financial condition and results of operations in a timely and accurate manner; any litigation relating to, the Company’s accounting practices, financial statements and other financial data, periodic reports or other corporate actions; changes in the demand for the Company’s O&P products and services; uncertainties relating to the results of operations or recently acquired O&P patient care clinics; the Company’s ability to enter into and derive benefits from managed-care contracts; the Company’s ability to successfully attract and retain qualified O&P clinicians; federal laws governing the health care industry; uncertainties inherent in investigations and legal proceedings; governmental policies affecting O&P operations; and other risks and uncertainties generally affecting the health care industry. For additional information and risk factors that could affect the Company, see its Form 10-K for the year ended December 31, 2018 as filed with the Securities and Exchange Commission. The information contained in this presentation is made only as of the date hereof, even if subsequently made available by the Company on its website or otherwise. Note Regarding the Presentation of Non-GAAP Financial Measures: This presentation includes certain “non-GAAP financial measures” as defined in Regulation G under the federal Securities Exchange Act of 1934. Non-GAAP measures include Adjusted EBITDA, Adjusted EBITDA Margin, adjusted earnings per share, leverage ratios, free cash flow. As required under Regulation G, Reconciliations of GAAP and non-GAAP financial results are included in schedules at the Appendix. These schedules reconcile the non-GAAP financial measures included in this presentation to the most direct comparable financial measure under generally-accepted accounting principles in the United States. The non-GAAP measures contained herein are used by the Company’s management to analyze the Company’s business results and are provided for informational and analytical context. page 02
Hanger At a Glance Who We Are: Industry leader in orthotics and prosthetics (O&P) services $4.2 billion 1 addressable O&P domestic U.S. market Pioneered prosthetic devices in 1861 Focus on custom devices By The Numbers (2018) : Net Revenue $1.049 billion Adjusted EBITDA 2 $121 million 4,600 employees in 881 locations (incl. 780 patient care and satellite locations) across 45 states and D.C. Two segments: Patient Care (82% revenue) and Products & Services (18% of revenue) 1 Source: Hanger Inc. estimates 2 Adjusted EBITDA is a non GAAP-measure. Please see the Appendix for a reconciliation of GAAP to non-GAAP metrics. page 03
Hanger Values, Vision and Purpose Our Values – Integrity, patient-focused, outcomes, collaboration, innovation – are the heartbeat of a cultural evolution that places our patients at the core of everything we do Our Vision – To lead the orthotic and prosthetic markets by providing superior patient care, outcomes, services and value Our Purpose – Empowering Human Potential Together page page 04 04
Business Mix Primary Focus on the Provision of Specialty Health Care 2018 Adjusted EBITDA 1 2018 Hanger Net Revenue $1.049 billion $121.1 million - 11.5% EBITDA margin Patient Care Patient Care $857.4 million $150.9 million 81.8% revenue 17.6% margin Hanger Hanger Net Adjusted Revenue EBITDA 1 G&A expense Products & ($66.3) million Products & Services Services $36.5 million $191.4 million 19.1% margin 18.2% revenue 1 Adjusted EBITDA is a non GAAP-measure. Please see the Appendix for a reconciliation of GAAP to non-GAAP metrics. page 05
Investment Thesis Industry Leader Building Sustainable Competitive Advantage Market Leader Sizeable Market Differentiators Growth Levers 1 2 3 4 • The leading provider • Multi-tier strategy to grow • $4.2 billion market for • Competitive of orthotic and organically, steadily expand prescription prostheses, differentiation through prosthetic services in margins and pursue M&A orthoses and prefabricated investments in clinical the United States to drive incremental growth or off-the-shelf orthoses outcomes, centralized • Provides approximately opportunities • Broad demand drivers revenue cycle 20% of all O&P across injuries and management, patient services in the United multiple, high prevalence engagement and supply States disease etiologies chain to drive growth Premier scalable provider in a large market for specialized healthcare services your page logo 06
Discussion Points Agenda Our Patient Care Products & Focused Financial Market Services Growth Performance Strategy page 07
Discussion Points Agenda Our Patient Care Products & Focused Financial Market Services Growth Performance Strategy page 08
Orthotics and Prosthetics (O&P) 95% of Hanger’s Revenue is Related to O&P Services and Distribution Orthotics Prosthetics Orthotic devices modify the structural and functional Prosthetic devices replace a missing limb or portion of a characteristics of the neuromuscular and skeletal limb system Provided to patients with amputated or congenitally absent Prescribed for injuries, musculoskeletal, neurological or limbs to replace the function and appearance of a limb orthopedic disorders Prosthetics are customized to meet the unique location Hanger Clinic emphasizes fabrications of customized and characteristics of the patient and their residual limb devices Prostheses have an average useful life ranging 3-5 years page 09
Prosthetics: Large and Growing Addressable Market Approximately 500,000 People Living with Major Limb Loss in the U.S. Disease 50% Trauma 47% Other 3% Approximately 350,000 people with major limb loss utilize a prosthesis +90% are lower extremity Typically have a 3-5 year replacement cycle (70% recurring revenue) Prosthetics total approximately 50% of the prescription O&P market Source: IQVIA (IMS) 2016 data; EpiSource 2014 data; Ziegler-Graham, et al., “Estimating the Prevalence of Limb Loss in the United States: 2005 to 2050”, Arch Phys Med Rehabil 2008:89, 422-429; Dillingham et al., “Rehabilitation Setting and Associated Mortality and Medical Stability Among Persons With Amputations”, Arch Phys Med Rehabil 2008:89, 1038-1045; Science Daily, “Prosthetic knee type may determine cost of care for amputees”, July 11, 2017 page 010
O&P Market: $4.2 billion Diverse Disease State Mix Drives Demand Injuries – Approximately 76,000 major amputations per year, 5-10% of which $1,420 are due to injury. +$1 billion spent on prosthetics secondary to injury Endocrine & Circulatory – Endocrine and circulatory disorders $1,170 drive the majority of major amputations. Mix of prosthetics and orthotics $960 Musculoskeletal Disease – Arthritis, spinal and foot disease requiring braces, boots and supports. Orthotics-only market $450 Other – Congenital, cancer and acute infections. May require prosthetics (i.e. $210 congential limb difference) or orthotics (i.e.cranial orthosis for plagiocephaly) Nervous System – 795,000 strokes per year – 75% occur in people +65, cerebral palsy, multiple sclerosis. Ankle-foot orthosis, braces $ millions Addressable market currently growing at 1.5 - 2.0% annually Sources: IMS Health, Hanger Estimates Note: “Major amputation or limb loss refers to a lower extremity, above or below the knee and upper limb, or combination thereof page 011
Discussion Points Agenda Our Patient Care Products & Focused Financial Market Services Growth Performance Strategy page 012
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