Hanger Orthopedic Group CEO Discusses Q3 2010 Results ¿¿ Earnings Call Transcript

We continue to do an excellent job managing expenses. Personnel costs were below budget amounts and generated a considerable amount of operating leverage. Operating expenses were below budget overall and also contributed to EBIDTA margin improvements. As I mentioned last quarter, our employees have to be commended for their efforts in this area because they really make this work.

We moved into our new headquarters as Tom mentioned on schedule on August 16^th. In this quarter we recorded $8 million in costs. The largest single charge included in this number was a $5 million reserve for rent related to the abandonment of our old headquarters in Bethesda, Maryland. These expenses are non-recurring and are shown as a separate line item on our income statement. D&A increased by $0.5 million compared to 2009, which is commensurate with the run rate of capital expenditures over the last 12 months.

All these factors I just discussed led to the 23.3% increase in adjusted EPS for the quarter. Moving on to the nine months, overall performance for the first nine months was in line with our expectations in terms of sales and exceeded our expectations from an earnings perspective. Operating leverage has improved by 50 basis points which exceeds our goal of 20-40 basis points. Revenue growth improved to 6.5%, in the middle of our expected range, with HPO same center sales increasing by 4% and our distribution business increasing 8.5%. Our com rate of 30.4% was equal to last year and is in line with our internal expectations.

Excluding relocation costs, income from operations increased to 11.9%, a 50 basis point improvement. Year to date we have incurred $14.2 million of relocation costs which is in line with our internal projections and guidance to the street. D&A was $1 million higher than last year due to higher capital additions and our tax rate to date is approximately 37.3%. Some of that rate decrease was due to a FIN 48 release in Q2. Our rate for the full year should approximate 48%. Adjusted diluted EPS was $0.90 or an 18.4% increase over the prior year.

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