10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File Number 1-10670

HANGER, INC.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	84-0904275 (I.R.S. Employer Identification No.)
10910 Domain Drive, Suite 300, Austin, TX (Address of principal executive offices)	78758 (Zip Code)

Registrant’s telephone number, including area code: (512) 777-3800

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.01 per share	HNGR	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x Accelerated filer o Non-accelerated filer o Smaller reporting company o Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x

As of April 27, 2022, the registrant had 39,029,037 shares of its Common Stock outstanding.

TABLE OF CONTENTS

Hanger, Inc.
Part I Financial Information
	Item 1. Condensed Consolidated Financial Statements (unaudited)	1
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	21
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	37
	Item 4. Controls and Procedures	37
Part II Other Information
	Item 1. Legal Proceedings	38
	Item 1A. Risk Factors	38
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	38
	Item 3. Defaults Upon Senior Securities	38
	Item 4. Mine Safety Disclosures	38
	Item 5. Other Information	38
	Item 6. Exhibits	38
Exhibits Index		39
Signatures		40

ii

PART 1.    FINANCIAL INFORMATION

HANGER, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except par value and share amounts)

(Unaudited)

	As of March 31,		As of December 31,
	2022		2021
ASSETS
Current assets:
Cash and cash equivalents	$	37,423	$	61,692
Accounts receivable, net	139,617		152,058
Inventories	83,288		87,462
Income taxes receivable	548		581
Other current assets	18,527		16,536
Total current assets	279,403		318,329
Non-current assets:
Property, plant, and equipment, net	80,906		82,434
Goodwill	367,914		363,554
Other intangible assets, net	25,032		25,892
Deferred income taxes	45,743		45,494
Operating lease right-of-use assets	141,820		144,491
Other assets	18,844		17,945
Total assets	$	959,662	$	998,139
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	13,535	$	14,938
Accounts payable	57,969		63,565
Accrued expenses and other current liabilities	58,391		60,399
Accrued compensation related costs	37,232		54,465
Current portion of operating lease liabilities	33,182		33,438
Total current liabilities	200,309		226,805
Long-term liabilities:
Long-term debt, less current portion	500,555		502,307
Operating lease liabilities	121,725		124,016
Other liabilities	28,520		34,840
Total liabilities	851,109		887,968
Commitments and contingencies (Note P)
Shareholders’ equity:
Common stock, $0.01 par value; 60,000,000 shares authorized; 39,204,040 shares issued and 39,061,219 shares outstanding at 2022, and 38,891,438 shares issued and 38,748,617 shares outstanding at 2021	392		389
Additional paid-in capital	373,092		373,644
Accumulated other comprehensive loss	(4,242)		(11,150)
Accumulated deficit	(259,993)		(252,016)
Treasury stock, at cost; 142,821 shares at both 2022 and 2021	(696)		(696)
Total shareholders’ equity	108,553		110,171
Total liabilities and shareholders’ equity	$	959,662	$	998,139

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

1

HANGER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands, except share and per share amounts)

(Unaudited)

	For the Three Months Ended March 31,
	2022		2021
Net revenues	$	261,287	$	237,470
Material costs	85,592		75,170
Personnel costs	101,675		89,880
Other operating costs	36,168		31,498
General and administrative expenses	32,442		30,903
Depreciation and amortization	7,955		7,998
(Loss) income from operations	(2,545)		2,021
Interest expense, net	7,385		7,340
Non-service defined benefit plan expense	160		167
Loss before income taxes	(10,090)		(5,486)
Benefit for income taxes	(2,113)		(2,156)
Net loss	$	(7,977)	$	(3,330)
Basic and diluted per common share data:
Basic and diluted loss per share	$	(0.21)	$	(0.09)
Weighted average shares used to compute basic and diluted loss per share	38,802,420		38,268,332

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2

HANGER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(dollars in thousands)

(Unaudited)

	For the Three Months Ended March 31,
	2022		2021
Net loss	$	(7,977)	$	(3,330)
Other comprehensive income:
Unrealized gain on cash flow hedges, net of tax provision of $2,058 and $796, respectively	$	6,896	$	2,512
Unrealized gain on defined benefit plan, net of tax provision of $48 and $19, respectively	12		60
Total other comprehensive income	6,908		2,572
Comprehensive loss	$	(1,069)	$	(758)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

HANGER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(dollars and share amounts in thousands)

(Unaudited)

	Common Shares	Common Shares, Par Value		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Treasury Stock		Total
Balance, December 31, 2021	38,749	$	389	$	373,644	$	(11,150)	$	(252,016)	$	(696)	$	110,171
Net loss	—	—		—		—		(7,977)		—		(7,977)
Share-based compensation expense	—	—		2,903		—		—		—		2,903
Issuance of common stock upon vesting of restricted stock units	324	3		(3)		—		—		—		—
Effect of shares withheld to cover taxes	—	—		(3,452)		—		—		—		(3,452)
Total other comprehensive income	—	—		—		6,908		—		—		6,908
Balance, March 31, 2022	39,073	$	392	$	373,092	$	(4,242)	$	(259,993)	$	(696)	$	108,553

	Common Shares	Common Shares, Par Value		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Treasury Stock		Total
Balance, December 31, 2020	38,179	$	383	$	365,503	$	(20,215)	$	(293,998)	$	(696)	$	50,977
Net loss	—	—		—		—		(3,330)		—		(3,330)
Share-based compensation expense	—	—		3,179		—		—		—		3,179
Issuance in connection with the exercise of stock options	29	—		366		—		—		—		366
Issuance of common stock upon vesting of restricted stock units	365	4		(4)		—		—		—		—
Effect of shares withheld to cover taxes	—	—		(4,520)		—		—		—		(4,520)
Total other comprehensive income	—	—		—		2,572		—		—		2,572
Balance, March 31, 2021	38,573	$	387	$	364,524	$	(17,643)	$	(297,328)	$	(696)	$	49,244

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

HANGER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(Unaudited)

	For the Three Months Ended March 31,
	2022		2021
Cash flows used in operating activities:
Net loss	$	(7,977)	$	(3,330)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	7,955		7,998
Benefit from doubtful accounts	(170)		(211)
Share-based compensation expense	2,903		3,179
Deferred income taxes	(2,466)		(1,795)
Amortization of debt discounts and issuance costs	518		472
Gain on sale and disposal of fixed assets	(228)		(524)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net	12,845		11,093
Inventories	4,259		(1,437)
Other current assets and other assets	(2,540)		(3,492)
Income taxes	33		25
Accounts payable	(6,038)		(14,055)
Accrued expenses and other current liabilities	1,328		(1,299)
Accrued compensation related costs	(17,245)		(36,936)
Other liabilities	(1,598)		(1,576)
Operating lease liabilities, net of amortization of right-of-use assets	123		(478)
Changes in operating assets and liabilities:	(8,833)		(48,155)
Net cash used in operating activities	(8,298)		(42,366)
Cash flows used in investing activities:
Purchase of property, plant, and equipment	(4,003)		(6,541)
Acquisitions, net of cash acquired	(4,001)		(19,377)
Purchase of therapeutic program equipment leased to third parties under operating leases	(450)		(395)
Proceeds from sale of property, plant, and equipment	551		796
Net cash used in investing activities	(7,903)		(25,517)
Cash flows used in financing activities:
Payment of employee taxes on share-based compensation	(3,452)		(4,520)
Payment on Seller Notes	(3,087)		(446)
Repayment of term loan	(1,263)		(1,263)
Payments of financing lease obligations	(266)		(265)
Payments under vendor financing arrangements	—		(275)
Proceeds from the exercise of options	—		366
Net cash used in financing activities	(8,068)		(6,403)
Decrease in cash and cash equivalents	(24,269)		(74,286)
Cash and cash equivalents at beginning of period	61,692		144,602
Cash and cash equivalents at end of period	$	37,423	$	70,316

Non-cash financing and investing activities:

Purchase of property, plant, and equipment in accounts payable at period end	$	3,393	$	3,458
Seller Notes and other non-cash consideration related to acquisitions	978		4,865
Right-of-use assets obtained in exchange for finance lease obligations	—		82

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5

HANGER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note A — Organization and Summary of Significant Accounting Policies

Description of Business

Hanger, Inc. (“we,” “our,” or “us”) is a leading national provider of products and services that assist in enhancing or restoring the physical capabilities of patients with disabilities or injuries. We provide orthotic and prosthetic (“O&P”) services, distribute O&P devices and components, manage O&P networks, and provide therapeutic solutions to patients and businesses in acute, post-acute, and clinic settings. We operate through two segments, Patient Care and Products & Services.

Basis of Presentation

The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X, and, therefore, do not include all of the information and footnotes required by GAAP for complete financial statements.  These financial statements should be read in conjunction with the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”), as previously filed with the Securities and Exchange Commission (the “SEC”).

In our opinion, the information contained herein reflects all adjustments necessary for a fair statement of our results of operations, financial position, and cash flows. All such adjustments are of a normal, recurring nature.  The results of operations for the interim periods are not necessarily indicative of those to be expected for the full year.

A detailed description of our significant accounting policies and management judgments is contained in our 2021 Form 10-K.

Reclassifications

We have reclassified certain amounts in the prior year condensed consolidated financial statements to be consistent with the current year presentation. These relate to immaterial classifications within expense line items in the condensed consolidated statements of operations.

Recent Developments Regarding COVID-19

We are subject to risks and uncertainties as a result of the outbreak of the novel coronavirus (“COVID-19”) pandemic (“COVID-19 pandemic”). The extent and duration of the impact of the COVID-19 pandemic on our operations and financial condition remain uncertain and difficult to predict. As a result of the COVID-19 pandemic, we believe that our patients are continuing to defer visits to our O&P clinics, as well as elective surgical procedures, both of which impact our business volumes through decreased patient encounters and physician referrals. Nevertheless, the overall adverse impact of the COVID-19 pandemic on our business volumes has diminished and stabilized over time, and our patient appointment and other business volumes continue to gradually improve as the prevalence of the virus decreases and COVID-19 vaccines become more widely available and accepted. It remains possible that further outbreaks of COVID-19, including the spread of variants such as the Delta and Omicron variants, or reinstitution of restrictive measures by federal, state, and local governments could cause a recessionary environment impacting the healthcare industry generally, including the O&P industry. The United States government has responded with fiscal policy measures intended to support the healthcare industry and economy as a whole, including the passage of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) in March 2020.

CARES Act

The CARES Act established the Public Health and Social Services Emergency Fund, also referred to as the Cares Act Provider Relief Fund, which set aside $203.5 billion to be administered through grants and other mechanisms to hospitals, public entities, not-for-profit entities and Medicare- and Medicaid- enrolled suppliers and institutional providers. The purpose of these funds is to reimburse providers for lost revenue and health-care related expenses that are attributable to the COVID-19 pandemic. In April 2020, the U.S. Department of Health and Human Services (“HHS”) began making payments to healthcare providers from the $203.5 billion appropriation. These are grants, rather than loans, to healthcare providers, and will not need to be repaid.

During the full year of 2021, we recognized a total benefit of $1.1 million in our consolidated statement of operations within Other operating costs in our Patient Care segment for the grant proceeds we received under the CARES Act (“Grants”) from HHS. We accounted for the proceeds from the Grants by analogy to International Accounting Standard (“IAS 20”), Accounting for Government Grants and Disclosure of Government Assistance and its principles surrounding the recognition of grants related to income. We recognize income related to grants on a systematic and rational basis when it becomes probable that we have complied with the terms and conditions of the grant and in the period in which the corresponding costs or income related to the grant are recognized. We are using the Grants for their intended purpose, and are compliant to the reporting requirements set by the terms and conditions of the grant.

The CARES Act also provided for a deferral of the employer portion of payroll taxes incurred during the COVID-19 pandemic through December 2020. The provisions allowed us to defer half of such payroll taxes until December 2021 and the remaining half until December 2022. We paid the first half in September 2021, and deferred $5.9 million of payroll taxes within Accrued compensation related costs in the condensed consolidated balance sheet as of March 31, 2022.

Recent Accounting Pronouncements, Not Yet Adopted

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU, effective beginning on March 12, 2020, provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. We are currently evaluating the effects that the adoption of this guidance, and related clarifying standards, will have on our condensed consolidated financial statements and the related disclosures.

Note B — Earnings Per Share

Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares outstanding during the period plus any potentially dilutive common shares, such as stock options, restricted stock units, and performance-based units calculated using the treasury stock method. Total anti-dilutive shares excluded from the diluted loss per share computation were 32,891 and 3,471 for the three months ended March 31, 2022 and 2021, respectively.

Our Credit Agreement (as defined below) restricts the payment of dividends or other distributions to our shareholders by us or any of our subsidiaries. See Note K - “Debt and Other Obligations” within these condensed consolidated financial statements.

6

The reconciliation of the numerators and denominators used to calculate basic and diluted net income per share are as follows:

	For the Three Months Ended March 31,
(in thousands except share and per share amounts)	2022		2021
Net loss	$	(7,977)	$	(3,330)
Weighted average shares outstanding - basic	38,802,420		38,268,332
Effect of potentially dilutive restricted stock units and options (1)	—		—
Weighted average shares outstanding - diluted	38,802,420		38,268,332
Basic and diluted loss per share	$	(0.21)	$	(0.09)

(1) In accordance with ASC 260 - Earnings Per Share, during periods of a net loss, shares used to compute diluted per share amounts exclude potentially dilutive shares related to unvested restricted stock units and unexercised options. For the three months ended March 31, 2022 and 2021, potentially dilutive shares of 490,081 and 906,116 shares, respectively, were excluded, as we were in a net loss position.

Note C — Revenue Recognition

Patient Care Segment

Revenue in our Patient Care segment is primarily derived from contracts with third party payors for the provision of O&P devices and is recognized upon the transfer of control of promised products or services to the patient at the time the patient receives the device. At, or subsequent to delivery, we issue an invoice to the third party payor, which primarily consists of commercial insurance companies, Medicare, Medicaid, the U.S. Department of Veterans Affairs (the “VA”), or private or patient pay (“Private Pay”) individuals. We recognize revenue for the amounts we expect to receive from payors based on expected contractual reimbursement rates, which are net of estimated contractual discounts and implicit price concessions. These revenue amounts are further revised as claims are adjudicated, which may result in additional disallowances.

The following table disaggregates revenue from contracts with customers in our Patient Care segment for the three months ended March 31, 2022 and 2021:

	For the Three Months Ended March 31,
(in thousands)	2022		2021
Patient Care Segment
Medicare	$	65,854	$	57,335
Medicaid	39,272		34,048
Commercial insurance / managed care (excluding Medicare and Medicaid managed care)	77,343		69,663
VA	21,049		19,764
Private Pay	16,300		14,872
Total	$	219,818	$	195,682

The impact to revenue related to prior period performance obligations was not material for the three months ended March 31, 2022 or 2021.

Products & Services Segment

Revenue in our Products & Services segment is derived from the distribution of O&P components and from therapeutic solutions which includes the leasing and sale of rehabilitation equipment and ancillary consumable supplies combined with equipment maintenance, education, and training.

7

The following table disaggregates revenue from contracts with customers in our Products & Services segment for the three months ended March 31, 2022 and 2021:

	For the Three Months Ended March 31,
(in thousands)	2022		2021
Products & Services Segment
Distribution services, net of intersegment revenue eliminations	$	31,390	$	30,660
Therapeutic solutions	10,079		11,128
Total	$	41,469	$	41,788

Note D — Accounts Receivable, Net

Accounts receivable, net represents outstanding amounts we expect to collect from the transfer of our products and services. Principally, these amounts are comprised of receivables from Medicare, Medicaid, and commercial insurance plans. Our accounts receivable represent amounts outstanding from our gross charges, net of contractual discounts, sales returns, and other implicit price concessions including estimates for payor disallowances and patient non-payments.

We are exposed to credit losses primarily through our accounts receivable. These receivables are short in nature because their due date varies between due upon receipt of invoice and 90 days. We assess our receivables, divide them into similar risk pools, and monitor our ongoing credit exposure through active review of our aging buckets. Our activities include timely account reconciliations, dispute resolution, and payment confirmations. We also employ collection agencies and legal counsel to pursue recovery of defaulted receivables.

Our expected loss methodology is developed using historical liquidation rates, current and future economic and market conditions, and a review of the current status of our patients and customers’ trade accounts receivable balances. We also group our receivables into similar risk pools to better measure the risks for each pool. After evaluating the risk for each pool, we have determined that additional credit loss risk is immaterial for the Patient Care segment. For the Products & Services segment, an allowance for doubtful accounts is recorded, which is deducted from gross accounts receivable to arrive at “Accounts receivable, net.” As of March 31, 2022, we have considered the current and future economic and market conditions resulting in a decrease to the allowance for doubtful accounts by approximately $0.1 million since December 31, 2021.

Accounts receivable, net as of March 31, 2022 and December 31, 2021 is comprised of the following:

	As of March 31, 2022						As of December 31, 2021
(in thousands)	Patient Care		Products & Services		Consolidated		Patient Care		Products & Services		Consolidated
Gross charges before estimates for implicit price concessions	$	157,814	$	21,089	$	178,903	$	173,115	$	21,459	$	194,574
Less estimates for implicit price concessions:
Payor disallowances	(30,300)		—		(30,300)		(33,007)		—		(33,007)
Patient non-payments	(7,059)		—		(7,059)		(7,500)		—		(7,500)
Accounts receivable, gross	120,455		21,089		141,544		132,608		21,459		154,067
Allowance for doubtful accounts	—		(1,927)		(1,927)		—		(2,009)		(2,009)
Accounts receivable, net	$	120,455	$	19,162	$	139,617	$	132,608	$	19,450	$	152,058

8

Note E — Inventories

Our inventories are comprised of the following:

	As of March 31,		As of December 31,
(in thousands)	2022		2021
Raw materials	$	22,569	$	22,759
Work in process	19,783		15,807
Finished goods	40,936		48,896
Total inventories	$	83,288	$	87,462

Note F — Acquisitions

2022 Acquisition Activity

In the first quarter of 2022, we completed the acquisition of all the outstanding equity interests of an O&P business for total consideration of $5.0 million, of which $4.0 million was cash consideration, net of cash acquired, and $1.0 million was issued in the form of notes to shareholders at fair value. The acquisition was completed with the intention of expanding the geographic footprint of our patient care offerings through the acquisition of this high quality O&P provider. The acquisition was not material to our financial position, results of operations, or cash flows.

We accounted for this transaction under the acquisition method of accounting and have reported the results of operations of the acquisition as of the date of the acquisition. We based the estimated fair values of intangible assets on an income approach utilizing the excess earnings method for customer relationships. The income approach utilizes management’s estimates of future operating results and cash flows using a weighted average cost of capital that reflects market participant assumptions. Other significant judgments used in the valuation of tangible assets acquired in the acquisition include estimated selling price of inventory and estimated replacement cost for acquired property, plant, and equipment. For all other assets acquired and liabilities assumed, the fair value reflects the carrying value of the asset or liability due to their short maturity. We recorded the excess of the fair value of the consideration transferred in the acquisition over the fair value of net assets acquired as goodwill. The goodwill reflects our expectations of favorable future growth opportunities, anticipated synergies through the scale of our O&P operations, and the assembled workforce. We expect that substantially all of the goodwill, which has been assigned to our Patient Care reporting unit, will not be deductible for federal income tax purposes.

Acquisition-related costs are included in general and administrative expenses in our condensed consolidated statements of operations. Total acquisition-related costs incurred during the three months ended March 31, 2022 were $0.3 million, which includes those costs for transactions that are in progress or were not completed during the respective period. Acquisition-related costs incurred for the acquisition completed during the three months ended March 31, 2022 were $0.1 million.

We have not presented pro forma combined results for this acquisition because the impact on previously reported statements of operations would not have been material.

Purchase Price Allocation

We have performed a preliminary valuation analysis of the fair market value of the assets acquired and liabilities assumed in the acquisition. The final purchase price allocation will be determined when we have completed and fully reviewed the detailed valuations which could differ materially from the preliminary allocations. The final allocation may include changes in allocations of acquired intangible assets as well as goodwill and other changes to assets and liabilities, including deferred taxes. The estimated useful lives of acquired intangible assets are also preliminary.

9

The aggregate purchase price of this acquisition was allocated on a preliminary basis as follows:

(in thousands)
Cash paid, net of cash acquired	$	4,001
Issuance of Seller Notes at fair value	981
Aggregate purchase price	4,982
Accounts receivable	310
Inventories	85
Customer relationships (Weighted average useful life of 5.0 years)	500
Non-compete agreements (Weighted average useful life of 5.0 years)	243
Other assets and liabilities, net	(103)
Net assets acquired	1,035
Goodwill	$	3,947

Right-of-use assets and lease liabilities related to operating leases recognized in connection with the acquisition completed for the three months ended March 31, 2022 were $0.4 million.

During the second quarter of 2022 to date, we completed the acquisition of one O&P business for a total purchase price of $3.2 million. Total consideration transferred for this acquisition is comprised of $2.4 million in cash consideration and $0.8 million in the form of notes to shareholders at fair value. Due to the proximity in time of this transaction to the filing of this Form 10-Q, it is not practicable to provide a preliminary purchase price allocation of the fair value of the assets purchased and liabilities assumed in the acquisition. Acquisition-related expenses related to this transaction were not material.

In March 2022, we entered into a definitive share purchase agreement in connection with the acquisition of one O&P business for a total purchase price of approximately $9.0 million. Due to the proximity in time of this transaction to the filing of this Form 10-Q, it is not practicable to provide a preliminary purchase price allocation of the fair value of the assets acquired and liabilities assumed in this acquisition. Acquisition-related expenses were not material for this transaction.

2021 Acquisition Activity

During 2021, we completed the following acquisitions of O&P clinics with the intention of expanding the geographic footprint of our patient care offerings through the acquisition of these high quality O&P providers. None of the acquisitions were individually material to our financial position, results of operations, or cash flows.

•In the first quarter of 2021, we completed the acquisitions of all the outstanding equity interests of three O&P businesses and the assets of one O&P business for total consideration of $24.2 million, of which $19.2 million was cash consideration, net of cash acquired, $4.0 million was issued in the form of notes to shareholders at fair value, and $1.0 million in additional consideration.

•In the second quarter of 2021, we completed the acquisitions of all the outstanding equity interests of two O&P businesses for total consideration of $21.0 million, of which $16.0 million was cash consideration, net of cash acquired, $4.9 million was issued in the form of notes to shareholders at fair value, and $0.1 million in additional consideration.

•In the third quarter of 2021, we completed the acquisitions of all the outstanding equity interests of three O&P businesses and the assets of one O&P business for total consideration of $6.2 million, of which $3.9 million was cash consideration, net of cash acquired, $1.5 million was issued in the form of notes to shareholders at fair value, and $0.8 million in additional consideration.

•In the fourth quarter of 2021, we completed the acquisitions of all the outstanding equity interests of eight O&P businesses for total consideration of $53.1 million, of which $40.8 million was cash consideration, net of cash acquired, and $12.3 million was issued in the form of notes to shareholders at fair value.

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Acquisition-related costs are included in general and administrative expenses in our condensed consolidated statements of operations. Total acquisition-related costs incurred during the year ended December 31, 2021 were $2.1 million, which includes those costs for transactions that were in progress or were not completed during the respective period. Acquisition-related costs incurred for the acquisitions completed during the year ended December 31, 2021 were $1.6 million.

The aggregate purchase price of these acquisitions was allocated on a preliminary basis as follows:

(in thousands)
Cash paid, net of cash acquired	$	79,927
Issuance of Seller Notes at fair value	22,706
Additional consideration, net	1,925
Aggregate purchase price	104,558
Accounts receivable	6,569
Inventories	4,683
Customer relationships (Weighted average useful life of 5.0 years)	11,745
Non-compete agreements (Weighted average useful life of 5.0 years)	558
Other assets and liabilities, net	(5,121)
Net assets acquired	18,434
Goodwill	$	86,124

Right-of-use assets and lease liabilities related to operating leases recognized in connection with acquisitions completed for the year ended December 31, 2021 were $8.9 million.

Note G — Goodwill and Other Intangible Assets

We assess goodwill and indefinite-lived intangible assets for impairment annually as of October 1st, and between annual tests if an event occurs, or circumstances change, that would more-likely-than-not reduce the fair value of a reporting unit below its carrying value.

The following table summarizes the activity in goodwill of the Patient Care operating segment for the period indicated:

	For the Three Months Ended March 31, 2022
(in thousands)	Goodwill, Gross		Accumulated Impairment		Goodwill, Net
As of December 31, 2021	$	792,222	$	(428,668)	$	363,554
Additions from acquisitions	3,947		—		3,947
Measurement period adjustments (1)	413		—		413
As of March 31, 2022	$	796,582	$	(428,668)	$	367,914

(1) Measurement period adjustments relate to 2021 acquisitions of approximately $0.4 million and are primarily attributable to adjustments to the preliminary allocations of acquired assets.

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The balances related to intangible assets as of March 31, 2022 are as follows:

	As of March 31, 2022
(in thousands)	Gross Carrying Amount		Accumulated Amortization		Accumulated Impairment		Net Carrying Amount
Customer lists	$	29,124	$	(11,364)	$	—	$	17,760
Trade name	255		(208)		—		47
Patents and other intangibles	9,815		(6,707)		—		3,108
Definite-lived intangible assets	39,194		(18,279)		—		20,915
Indefinite-lived trade name	9,070		—		(4,953)		4,117
Total other intangible assets	$	48,264	$	(18,279)	$	(4,953)	$	25,032

Amortization expense related to other intangible assets was approximately $1.6 million and $1.0 million for the three months ended March 31, 2022 and 2021, respectively.

Note H — Other Current Assets and Other Assets

Other current assets consist of the following:

	As of March 31,		As of December 31,
(in thousands)	2022		2021
Non-trade receivables	$	6,291	$	7,725
Prepaid maintenance	4,781		4,553
Prepaid insurance	2,397		510
Other prepaid assets	5,058		3,748
Total other current assets	$	18,527	$	16,536

Other assets consist of the following:

	As of March 31,		As of December 31,
(in thousands)	2022		2021
Implementation costs for cloud computing arrangements	$	6,301	$	6,459
Cash surrender value of company-owned life insurance	4,235		4,471
Finance lease right-of-use assets	2,536		2,732
Deposits	2,214		2,178
Non-trade receivables	1,583		1,172
Other	1,975		933
Total other assets	$	18,844	$	17,945

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Note I — Accrued Expenses and Other Current Liabilities and Other Liabilities

Accrued expenses and other current liabilities consist of:

	As of March 31,		As of December 31,
(in thousands)	2022		2021
Patient prepayments, deposits, and refunds payable	$	28,992	$	26,475
Insurance and self-insurance accruals	9,296		8,943
Accrued sales taxes and other taxes	7,900		7,803
Derivative liability	2,698		6,425
Accrued professional fees	710		750
Accrued interest payable	723		707
Other current liabilities	8,072		9,296
Total	$	58,391	$	60,399

Other liabilities consist of:

	As of March 31,		As of December 31,
(in thousands)	2022		2021
Supplemental executive retirement plan obligations	$	19,018	$	20,779
Long-term insurance accruals	7,264		7,112
Derivative liability	—		4,664
Other	2,238		2,285
Total	$	28,520	$	34,840

Note J — Income Taxes

We recorded a benefit for income taxes of $2.1 million and $2.2 million for the three months ended March 31, 2022 and 2021, respectively. The effective tax rate was 20.9% and 39.3% for the three months ended March 31, 2022 and 2021, respectively.

The decrease in the effective tax rate for the three months ended March 31, 2022 compared with the three months ended March 31, 2021 is primarily attributable to a decrease in pre-tax book income, nondeductible permanent items, and a windfall for the three months ended March 31, 2021 compared to a shortfall for the three months ended March 31, 2022. Our effective tax rate for the three months ended March 31, 2022 is similar to the federal statutory tax rate of 21%, but the difference consists primarily of research and development credits offset by non-deductible expenses and shortfall from share-based compensation. Our effective tax rate for the three months ended March 31, 2021 differed from the federal statutory tax rate of 21% primarily due to research and development credits, non-deductible expenses, and windfall from share-based compensation.

For the year ending December 31, 2022, we estimate a research and development tax credit of $2.7 million, net of tax reserves. We record the tax benefit, net of tax reserves, as a deferred tax asset. For the year ended December 31, 2021, we recognized research and development tax credits of $4.3 million, net of tax reserves.

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Note K — Debt and Other Obligations

Debt consists of the following:

	As of March 31,		As of December 31,
(in thousands)	2022		2021
Debt:
Term Loan B	$	484,800	$	486,063
Seller Notes	27,725		29,812
Deferred payment obligation	4,000		4,000
Finance lease liabilities and other	3,097		3,344
Total debt before unamortized discount and debt issuance costs	519,622		523,219
Unamortized discount and debt issuance costs, net	(5,532)		(5,974)
Total debt	$	514,090	$	517,245
Current portion of long-term debt:
Term Loan B	$	5,050	$	5,050
Seller Notes	7,595		8,969
Finance lease liabilities and other	890		919
Total current portion of long-term debt	13,535		14,938
Long-term debt	$	500,555	$	502,307

Credit Agreement and Term B Borrowings

As of March 31, 2022, we have a Senior Credit Facility (the “Credit Agreement”) which provides for (i) a Term Loan B facility with $484.8 million outstanding which is due in quarterly principal installments with all remaining outstanding principal due at maturity in March 2025 and (ii) a revolving credit facility with an availability of $135.0 million which matures on November 23, 2026 (subject to a springing maturity if the term loans outstanding under the Credit Agreement are not repaid prior to the date that is 91 days prior to the stated maturity thereof). Availability under the revolving credit facility is reduced by outstanding letters of credit, which were $5.2 million as of March 31, 2022, resulting in approximately $129.8 million in available borrowing capacity.

Our obligations under the Credit Agreement are currently guaranteed by our material domestic subsidiaries and will from time to time be guaranteed by, subject in each case to certain exceptions, any domestic subsidiaries that may become material in the future. Subject to certain exceptions, the Credit Agreement is secured by first-priority perfected liens and security interests in substantially all of our personal property and each subsidiary guarantor.

Borrowings under the Credit Agreement bear interest at a variable rate equal to (i) LIBOR plus a specified margin, subject to a LIBOR interest rate floor of 0.00% per annum, or (ii) the base rate (which is the highest of (a) Bank of America, N.A.’s prime rate, (b) the federal funds rate plus 0.50% or (c) the sum of 1% plus one-month LIBOR) plus a specified margin. For the three months ended March 31, 2022, the weighted average interest rate on outstanding borrowings under our Term Loan B facility was approximately 3.6%. We have entered into interest rate swap agreements to hedge certain of our interest rate exposures, as more fully disclosed in Note M - “Derivative Financial Instruments.”

We must also pay (i) an unused commitment fee ranging from 0.375% to 0.500% per annum of the average daily unused portion of the aggregate revolving credit commitments under the Credit Agreement, and (ii) a per annum fee equal to (a) for each performance standby letter of credit outstanding under the Credit Agreement with respect to nonfinancial contractual obligations, 50% of the applicable margin over LIBOR under the revolving credit facility in effect from time to time multiplied by the daily amount available to be drawn under such letter of credit, and (b) for each other letter of credit outstanding under the Credit Agreement, the applicable margin over LIBOR under the revolving credit facility in effect from time to time multiplied by the daily amount available to be drawn for such letter of credit.

The Credit Agreement and its amendments contain various restrictions and covenants, including: (i) requirements that we maintain certain financial ratios at prescribed levels, (ii) a prohibition on payment of dividends and other distributions and

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(iii) restrictions on our ability and certain of our subsidiaries to consolidate or merge, create liens, incur additional indebtedness, dispose of assets, or consummate acquisitions outside the healthcare industry. The Credit Agreement includes the following financial covenants applicable for so long as any revolving loans and/or revolving commitments remain outstanding under the Credit Agreement: (i) a maximum consolidated first lien net leverage ratio (“Net Leverage Ratio”) (defined as, with certain adjustments and exclusions, the ratio of consolidated first-lien indebtedness to consolidated net income before interest, taxes, depreciation, amortization, non-cash charges and certain other items (“EBITDA”) for the most recently ended period of four fiscal quarters for which financial statements are available) shall be up to (a) 5.00 to 1.00 for the fiscal quarters ending March 31, 2022, June 30, 2022, and September 30, 2022 and (b) 4.75 to 1.00 for the fiscal quarter ending December 31, 2022 and the last day of each fiscal quarter thereafter, (ii) permit, at our election and up to three times during the term of the Credit Agreement, the maximum allowable leverage ratio for covenant purposes to be temporarily increased by an additional 0.50 to 1.00 for four consecutive fiscal quarters in connection with certain material acquisitions, and (iii) a minimum interest coverage ratio (defined as, with certain adjustments, the ratio of our EBITDA to consolidated interest expense to the extent paid or payable in cash) of 2.75 to 1.00 as of the last day of any fiscal quarter.

The Credit Agreement also contains customary events of default. If an event of default under the Credit Agreement occurs and is continuing, then the lenders may declare any outstanding obligations under the Credit Agreement to be immediately due and payable; provided, however, that the occurrence of an event of default as a result of a breach of a financial covenant under the Credit Agreement does not constitute a default or event of default with respect to any term facility under the Credit Agreement unless and until the required revolving lenders shall have terminated their revolving commitments and declared all amounts outstanding under the revolving credit facility to be due and payable. In addition, if we or any subsidiary guarantor becomes the subject of voluntary or involuntary proceedings under any bankruptcy, insolvency, or similar law, then any outstanding obligations under the Credit Agreement will automatically become immediately due and payable. Loans outstanding under the Credit Agreement will bear interest at a rate of 2.00% per annum in excess of the otherwise applicable rate (i) upon acceleration of such loans, (ii) while a payment event of default exists or (iii) upon the lenders’ request, during the continuance of any other event of default.

We were in compliance with all covenants at March 31, 2022.

Seller Notes and the Deferred Payment Obligation

We typically issue subordinated promissory notes (“Seller Notes”) as a part of the consideration transferred when making acquisitions. The Seller Notes are unsecured and are presented net of unamortized discount of $0.8 million and $0.9 million as of March 31, 2022 and December 31, 2021, respectively. We measure these instruments at their estimated fair values as of the respective acquisition dates. The stated interest rates on these instruments range from 2.50% to 3.00%. Principal and interest are payable in quarterly or annual installments and mature through November 2026.

Amounts due under the deferred payment obligation to the former shareholders of an acquired O&P business are unsecured and presented net of unamortized discount of $0.4 million as of March 31, 2022 and December 31, 2021, respectively. The deferred payment obligation was measured at its estimated fair value as of the acquisition date and accrues interest at a rate of 3.0%. Principal and interest payments under the deferred payment obligation are due in annual installments beginning in 2024 and for three years thereafter.

Note L — Fair Value Measurements

Financial Instruments

The carrying value of our outstanding term loan as of March 31, 2022 (excluding unamortized discounts and debt issuance costs of $4.7 million) was $484.8 million compared to its fair value of $477.5 million. The carrying value of our outstanding term loan as of December 31, 2021 (excluding unamortized discounts and debt issuance costs of $5.1 million) was $486.1 million compared to its fair value of $484.8 million. Our estimates of fair value are based on a discounted cash flow model and an indicative quote using unobservable inputs, primarily, our risk-adjusted credit spread, which represents a Level 3 measurement.

We have interest rate swap agreements designated as cash flow hedges which are measured at fair value based on inputs other than quoted market prices that are observable, which represents a Level 2 measurement. See Note K - “Debt and Other Obligations” and Note M - “Derivative Financial Instruments” for further information.

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We believe that the carrying value of the Seller Notes and the deferred payment obligation approximates their fair values based on a discounted cash flow model using unobservable inputs, primarily, our credit spread for subordinated debt, which represents a Level 3 measurement. The carrying value of our outstanding Seller Notes and the deferred payment obligation issued in connection with past acquisitions as of March 31, 2022 and December 31, 2021 was $30.9 million and $32.9 million, net of unamortized discounts of $0.8 million and $0.9 million, respectively.

Note M — Derivative Financial Instruments

Cash Flow Hedges of Interest Rate Risk

In March 2018, we entered into interest rate swap agreements with notional values of $325.0 million at inception, which reduces $12.5 million annually until the swaps mature on March 6, 2024. As of March 31, 2022 and December 31, 2021, our swaps had a notional value outstanding of $275.0 million and $287.5 million, respectively.

Change in Net Loss on Cash Flow Hedges Included in Accumulated Other Comprehensive Loss

The following table presents the activity of cash flow hedges included in accumulated other comprehensive loss for the three months ended March 31, 2022 and 2021, respectively:

(in thousands)	Cash Flow Hedges
Balance as of December 31, 2021	$	(8,504)
Unrealized gain recognized in other comprehensive income before reclassifications, net of tax	5,020
Reclassification to interest expense, net of tax	1,876
Balance as of March 31, 2022	$	(1,608)
Balance as of December 31, 2020	$	(16,771)
Unrealized gain recognized in other comprehensive loss before reclassifications, net of tax	529
Reclassification to interest expense, net of tax	1,983
Balance as of March 31, 2021	$	(14,259)

The following table presents the fair value of derivative assets and liabilities within the condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021:

	As of March 31, 2022				As of December 31, 2021
(in thousands)	Assets		Liabilities		Assets		Liabilities
Derivatives designated as cash flow hedging instruments:
Other assets	$	563	$	—	$	—	$	—
Accrued expenses and other current liabilities	—		2,698		—		6,425
Other liabilities	—		—		—		4,664

Note N — Share-Based Compensation

On May 17, 2019, the shareholders approved the Hanger, Inc. 2019 Omnibus Incentive Plan (the “2019 Plan”). The 2019 Plan authorizes the issuance of (a) up to 2,025,000 shares of Common Stock, plus (b) 243,611 shares available for issuance under the Hanger, Inc. 2016 Omnibus Incentive Plan (the “2016 Plan”). Upon approval of the 2019 Plan, the 2016 Plan was no longer available for future awards.

As of March 31, 2022, there were 1,609,030 unvested restricted stock awards outstanding. This was comprised of 1,166,910 employee service-based awards with a weighted average grant date fair value of $20.65 per share, 392,764 employee performance-based awards with a weighted average grant date fair value of $20.57 per share, and 49,356 director service-based awards with a weighted average grant date value of $25.53 per share. As of March 31, 2022, there were 275,783 outstanding options exercisable with a weighted average exercise price of $12.77 and average remaining contractual term of 4.8 years.

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We recognized approximately $2.9 million and $3.2 million of share-based compensation expense for the three months ended March 31, 2022 and 2021, respectively. Share-based compensation expense, net of forfeitures, relates to restricted stock units, performance-based restricted stock units, and stock options.

Note O — Supplemental Executive Retirement Plans

Defined Benefit Supplemental Executive Retirement Plan

Effective January 2004, we implemented an unfunded noncontributory defined benefit plan (“DB SERP”) for certain senior executives. The DB SERP, which we administer, calls for fifteen annual payments upon retirement with the payment amount based on years of service and final average salary. Benefit costs and liability balances are calculated based on certain assumptions including benefits earned, discount rates, interest costs, mortality rates, and other factors. Actual results that differ from the assumptions are accumulated and amortized over future periods, affecting the recorded obligation and expense in future periods.

We believe the assumptions used are appropriate; however, changes in assumptions or differences in actual experience may affect our benefit obligation and future expenses. The change in net benefit cost and obligation during the three months ended March 31, 2022 and 2021 is as follows:

Change in Benefit Obligation:
(in thousands)	2022		2021
Benefit obligation as of December 31, 2021 and 2020, respectively	$	17,935	$	19,746
Service cost	116		123
Interest cost	99		87
Payments	(1,877)		(1,877)
Benefit obligation as of March 31	$	16,273	$	18,079

Amounts Recognized in the Condensed Consolidated Balance Sheets:
	As of March 31,		As of December 31,
(in thousands)	2022		2021
Current accrued expenses and other current liabilities	$	1,913	$	1,913
Non-current other liabilities	14,360		16,022
Total accrued liabilities	$	16,273	$	17,935

Defined Contribution Supplemental Executive Retirement Plan

In 2013, we established a defined contribution plan (“DC SERP”) that covers certain of our senior executives. Each participant is given a notional account to manage his or her annual distributions and allocate the funds among various investment options (e.g., mutual funds). These accounts are tracking accounts only for the purpose of calculating the participant’s benefit. The participant does not have ownership of the underlying mutual funds. When a participant initiates or changes the allocation of his or her notional account, we will generally make an allocation of our investments to match those chosen by the participant. While the allocation of our sub accounts is generally intended to mirror the participant’s account records (i.e., the distributions and gains or losses on those funds), the employee does not have legal ownership of any funds until payout upon retirement. The underlying investments are owned by the insurance company with which we own an insurance policy.

As of March 31, 2022 and December 31, 2021, the estimated accumulated benefit obligation is $4.7 million and $4.8 million, of which $4.5 million and $4.1 million is funded and $0.2 million and $0.6 million is unfunded at March 31, 2022 and December 31, 2021, respectively.

In connection with the DC SERP benefit obligation, we maintain a company-owned life insurance policy (“COLI”). The carrying value of the COLI is measured at its cash surrender value and is presented within “Other assets” in our condensed consolidated balance sheets. See Note H - “Other Current Assets and Other Assets” for additional information.

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Note P — Commitments and Contingencies

Guarantees and Indemnification

In the ordinary course of our business, we may enter into service agreements with service providers in which we agree to indemnify or limit the service provider against certain losses and liabilities arising from the service provider’s performance of the agreement. We have reviewed our existing contracts containing indemnification or clauses of guarantees and do not believe that our liability under such agreements is material.

Other Matters

From time to time we are subject to legal proceedings and claims which arise in the ordinary course of our business, and are also subject to additional payments under business purchase agreements. In the opinion of management, the amount of ultimate liability, if any, with respect to these actions will not have a materially adverse effect on our consolidated financial position, liquidity or results of operations.

We operate in a highly regulated industry and receive regulatory agency inquiries from time to time in the ordinary course of our business, including inquiries relating to our billing activities. No assurance can be given that any discrepancies identified during a regulatory review will not have a material adverse effect on our consolidated financial statements.

Note Q — Segment and Related Information

We have identified two operating segments and both performance evaluation and resource allocation decisions are determined based on each segment’s income from operations. The operating segments are described further below.

Patient Care - This segment consists of (i) our owned and operated patient care clinics, and (ii) our contracting and network management business. The patient care clinics provide services to design and fit O&P devices to patients. These clinics also instruct patients in the use, care, and maintenance of the devices. The principal reimbursement sources for our services are:

•Commercial private payors and other, which consist of individuals, rehabilitation providers, commercial insurance companies, health management organizations (“HMOs”), preferred provider organizations (“PPOs”), hospitals, vocational rehabilitation, workers’ compensation programs, and similar sources;

•Medicare, a federally funded health insurance program providing health insurance coverage for persons aged 65 or older and certain persons with disabilities, which provides reimbursement for O&P products and services based on prices set forth in published fee schedules (generally with either 10 regional pricing areas or state level prices) for prosthetics and orthotics and by state for durable medical equipment (DMEPOS);

•Medicaid, a health insurance program jointly funded by federal and state governments providing health insurance coverage for certain persons requiring financial assistance, regardless of age, which may supplement Medicare benefits for persons aged 65 or older requiring financial assistance; and

•the VA.

Our contract and network management business, known as Linkia, is the only network management company dedicated solely to serving the O&P market and is focused on managing the O&P services of national and regional insurance companies. We partner with healthcare insurance companies by securing a national or regional contract either as a preferred provider or to manage their O&P network of providers.

Products & Services - This segment consists of our distribution business, which distributes and fabricates O&P products and components to sell to both the O&P industry and our own patient care clinics, and our therapeutic solutions business. The therapeutic solutions business leases and sells rehabilitation equipment and ancillary consumable supplies combined with equipment maintenance, education, and training.

Corporate & Other - This consists of corporate overhead and includes unallocated expense such as personnel costs, professional fees, and corporate offices expenses.

The accounting policies of the segments are the same as those described in Note A - “Organization and Summary of Significant Accounting Policies” in our 2021 Form 10-K.

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Intersegment revenue primarily relates to sales of O&P components from the Products & Services segment to the Patient Care segment. The sales are priced at the cost of the related materials plus overhead.

Summarized financial information concerning our reportable segments is shown in the following tables. Total assets for each of the segments has not materially changed from December 31, 2021.

	Patient Care				Products & Services
	For the Three Months Ended March 31,				For the Three Months Ended March 31,
(in thousands)	2022		2021		2022		2021
Net revenues
Third party	$	219,818	$	195,682	$	41,469	$	41,788
Intersegments	—		—		54,675		47,047
Total net revenues	219,818		195,682		96,144		88,835
Material costs
Third party suppliers	59,918		51,617		25,674		23,553
Intersegments	11,058		8,305		43,617		38,742
Total material costs	70,976		59,922		69,291		62,295
Personnel expenses	86,409		75,754		15,266		14,126
Other expenses	40,696		36,141		7,057		5,803
Depreciation & amortization	4,744		4,815		2,023		1,935
Segment income from operations	$	16,993	$	19,050	$	2,507	$	4,676

A reconciliation of the total of the reportable segments’ income from operations to consolidated net loss is as follows:

	For the Three Months Ended March 31,
(in thousands)	2022		2021
(Loss) income from operations
Patient Care	$	16,993	$	19,050
Products & Services	2,507		4,676
Corporate & other	(22,045)		(21,705)
(Loss) income from operations	(2,545)		2,021
Interest expense, net	7,385		7,340
Non-service defined benefit plan expense	160		167
Loss before income taxes	(10,090)		(5,486)
Benefit for income taxes	(2,113)		(2,156)
Net loss	$	(7,977)	$	(3,330)

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A reconciliation of the reportable segments’ net revenues to consolidated net revenues is as follows:

	For the Three Months Ended March 31,
(in thousands)	2022		2021
Net revenues
Patient Care	$	219,818	$	195,682
Products & Services	96,144		88,835
Corporate & other	—		—
Consolidating adjustments	(54,675)		(47,047)
Consolidated net revenues	$	261,287	$	237,470

A reconciliation of the reportable segments’ material costs to consolidated material costs is as follows:

	For the Three Months Ended March 31,
(in thousands)	2022		2021
Material costs
Patient Care	$	70,976	$	59,922
Products & Services	69,291		62,295
Corporate & other	—		—
Consolidating adjustments	(54,675)		(47,047)
Consolidated material costs	$	85,592	$	75,170

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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This report contains statements that are forward-looking statements within the meaning of the federal securities laws. Forward-looking statements include information concerning our liquidity and our possible or assumed future results of operations, including descriptions of our business strategies. These statements often include words such as “believe,” “expect,” “project,” “potential,” “anticipate,” “intend,” “plan,” “estimate,” “seek,” “will,” “may,” “would,” “should,” “could,” “forecasts,” or similar words. These statements are based on certain assumptions that we have made in light of our experience in the industry as well as our perceptions of historical trends, current conditions, expected future developments, and other factors we believe are appropriate in these circumstances. We believe these assumptions are reasonable, but you should understand that these statements are not guarantees of performance or results, and our actual results could differ materially from those expressed in the forward-looking statements due to a variety of important factors, both positive and negative, that may be revised or supplemented in subsequent reports.

These statements involve risks, estimates, assumptions, and uncertainties that could cause actual results to differ materially from those expressed in these statements and elsewhere in this report. These uncertainties include, but are not limited to, contractual, inflationary, and other general cost increases, including with regard to costs of labor, raw materials, and freight; labor shortages and increased turnover in our employee base; the financial and business impacts of the COVID-19 pandemic on our operations and the operations of our customers, suppliers, governmental and private payors, and others in the healthcare industry and beyond; federal laws governing the health care industry; governmental policies affecting O&P operations, including with respect to reimbursement; failure to successfully implement a new enterprise resource planning system or other disruptions to information technology systems; the inability to successfully execute our acquisition strategy, including integration of recently acquired O&P clinics into our existing business; changes in the demand for our O&P products and services, including additional competition in the O&P services market; disruptions to our supply chain; our ability to enter into and derive benefits from managed-care contracts; our ability to successfully attract and retain qualified O&P clinicians; and other risks and uncertainties generally affecting the health care industry.

Readers are cautioned that all forward-looking statements involve known and unknown risks and uncertainties including, without limitation, those described in Item 1A. “Risk Factors”, contained in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”), as well as those described in Part II, Item 1A. “Risk Factors” of this Quarterly Report on Form 10-Q, some of which are beyond our control. Although we believe that the assumptions underlying the forward-looking statements contained therein are reasonable, any of the assumptions could be inaccurate. Therefore, there can be no assurance that the forward-looking statements included in this Quarterly Report on Form 10-Q will prove to be accurate. Actual results could differ materially and adversely from those contemplated by any forward-looking statement. In light of the significant risks and uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. We undertake no obligation to publicly release any revisions to any forward-looking statements in this discussion to reflect events and circumstances occurring after the date hereof or to reflect unanticipated events. Forward-looking statements and our liquidity, financial condition, and results of operations may be affected by the risks set forth in Item 1A. “Risk Factors”, contained in our 2021 Form 10-K, in Part II, Item 1A. “Risk Factors” of this Quarterly Report on Form 10-Q, or by other unknown risks and uncertainties.

Non-GAAP Measures

We refer to certain financial measures and statistics that are not in accordance with accounting principles generally accepted in the United States of America (“GAAP”). We utilize these non-GAAP measures in order to evaluate the underlying factors that affect our business performance and trends. These non-GAAP measures should not be considered in isolation and should not be considered superior to, or as a substitute for, financial measures calculated in accordance with GAAP. We have defined and provided a reconciliation of these non-GAAP measures to their most comparable GAAP measures. The non-GAAP measure used in this Management’s Discussion and Analysis is as follows:

Same Clinic Revenues Per Day - measures the year-over-year change in revenue from clinics that have been open a full calendar year or more. Examples of clinics not included in the same center population are closures and acquisitions. Day-adjusted growth normalizes sales for the number of days a clinic was open in each comparable period.

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Business Overview

General

We are a leading national provider of products and services that assist in enhancing or restoring the physical capabilities of patients with disabilities or injuries, and we and our predecessor companies have provided O&P services for nearly 160 years. We provide O&P services, distribute O&P devices and components, manage O&P networks, and provide therapeutic solutions to patients and businesses in acute, post-acute, and clinic settings. We operate through two segments - Patient Care and Products & Services.

Our Patient Care segment is primarily comprised of Hanger Clinic, which specializes in comprehensive, outcomes-based design, fabrication, and delivery of custom O&P devices through 757 patient care clinics and 118 satellite locations in 47 states, the District of Columbia, and the U.S. Virgin Islands as of March 31, 2022. We also provide payor network contracting services to other O&P providers through this segment.

Our Products & Services segment is comprised of our distribution services and therapeutic solutions businesses. As a leading provider of O&P products in the United States, we engage in the distribution of a broad catalog of branded and private label O&P devices, products, and components to independent O&P providers nationwide. The other business in our Products & Services segment is our therapeutic solutions business, which develops specialized rehabilitation technologies and provides evidence-based clinical programs for post-acute rehabilitation to patients at approximately 4,000 skilled nursing and post-acute providers nationwide.

For the three months ended March 31, 2022, our net revenues were $261.3 million and we recorded a net loss of $8.0 million. For the three months ended March 31, 2021, our net revenues were $237.5 million and we recorded a net loss of $3.3 million.

Industry Overview

We estimate that approximately $4.3 billion is spent in the United States each year for prescription-based O&P products and services through O&P clinics. We believe our Patient Care segment currently accounts for approximately 24% of the market, providing a comprehensive portfolio of orthotic, prosthetic, and post-operative solutions to patients in acute, post-acute, and patient care clinic settings.

The O&P patient care services market in the United States is highly fragmented and is characterized by regional and local independent O&P businesses operated predominantly by independent operators, but also including two O&P product manufacturers with substantial international patient care services operations. We do not believe that any single competitor accounts for 2.5% or more of the nation’s total estimated O&P clinic revenues.

The industry is characterized by stable, recurring revenues, primarily resulting from new patients as well as the need for periodic replacement and modification of O&P devices. We anticipate that the demand for O&P services will continue to grow as the nation’s population increases, and as a result of several trends, including the aging of the U.S. population, there will be an increase in the prevalence of disease-related disability and the demand for new and advanced devices. We believe the typical replacement time for prosthetic devices is three to five years, while the typical replacement time for orthotic devices varies, depending on the device.

We estimate that approximately $1.8 billion is spent in the United States each year by providers of O&P patient care services for the O&P products, components, devices, and supplies used in their businesses. Our Products & Services segment distributes to independent providers of O&P services. We estimate that our distribution sales account for approximately 7% of the market for O&P products, components, devices, and supplies (excluding sales to our Patient Care segment).

We estimate the market for rehabilitation technologies, integrated clinical programs, and clinician training in skilled nursing facilities (“SNFs”) to be approximately $150 million annually. We currently provide these products and services to approximately 25% of the estimated 15,000 SNFs located in the U.S. We estimate the market for rehabilitation technologies, clinical programs, and training within the broader post-acute rehabilitation markets to be approximately $400 million annually. We do not currently provide a meaningful amount of products and services to this broader market.

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Business Description

Patient Care

Our Patient Care segment employs approximately 1,650 clinical prosthetists, orthotists, and pedorthists, which we refer to as clinicians, substantially all of which are certified by either the American Board for Certification (“ABC”) or the Board of Certification of Orthotists and Prosthetists, which are the two boards that certify O&P clinicians. To facilitate timely service to our patients, we also employ technicians, fitters, and other ancillary providers to assist our clinicians in the performance of their duties. Through this segment, we additionally provide network contracting services to independent providers of O&P.

Patients are typically referred to Hanger Clinic by an attending physician who determines a patient’s treatment and writes a prescription. Our clinicians then consult with both the referring physician and the patient with a view toward assisting in the selection of an orthotic or prosthetic device to meet the patient’s needs. O&P devices are increasingly technologically advanced and custom designed to add functionality and comfort to patients’ lives, shorten the rehabilitation process, and lower the cost of rehabilitation.

Based on the prescription written by a referring physician, our clinicians examine and evaluate the patient and either design a custom device or, in the case of certain orthotic needs, utilize a non-custom device, including, in appropriate circumstances, an “off the shelf” device, to address the patient’s needs. When fabricating a device, our clinicians ascertain the specific requirements, componentry, and measurements necessary for the construction of the device. Custom devices are constructed using componentry provided by a variety of third party manufacturers that specialize in O&P, coupled with sockets and other elements that are fabricated by our clinicians and technicians, to meet the individual patient’s physical and ambulatory needs. Our clinicians and technicians typically utilize castings, electronic scans, and other techniques to fabricate items that are specialized for the patient. After fabricating the device, a fitting process is undertaken and adjustments are made to ensure the achievement of proper alignment, fit, and patient comfort. The fitting process often involves several stages to successfully achieve desired functional and cosmetic results.

Given the differing physical weight and size characteristics, location of injury or amputation, capability for physical activity and mobility, cosmetic, and other needs of each individual patient, each fabricated prosthesis and orthosis is customized for each particular patient. These custom devices are commonly fabricated at one of our regional or national fabrication facilities.

We have earned a reputation within the O&P industry for the development and use of innovative technology in our products, which has increased patient comfort and capability and can significantly enhance the rehabilitation process. We utilize multiple scanning and imaging technologies in the fabrication process, depending on the patient’s individual needs, including our proprietary Insignia scanning system. The Insignia system scans the patient and produces an accurate computer-generated image, resulting in a faster turnaround for the patient’s device and a more professional overall experience.

In recent years, we have established a centralized revenue cycle management organization that assists our clinics in pre-authorization, patient eligibility, denial management, collections, payor audit coordination, and other accounts receivable processes.

The principal reimbursement sources for our services are:

•Commercial private payors and other non-governmental organizations, which consist of individuals, rehabilitation providers, commercial insurance companies, health maintenance organizations (“HMOs”), preferred provider organizations (“PPOs”), hospitals, vocational rehabilitation centers, workers’ compensation programs, third party administrators, and similar sources;

•Medicare, a federally funded health insurance program providing health insurance coverage for persons aged 65 or older and certain persons with disabilities;

•Medicaid, a health insurance program jointly funded by federal and state governments providing health insurance coverage for certain persons requiring financial assistance, regardless of age, which may supplement Medicare benefits for persons aged 65 or older requiring financial assistance; and

•the U.S. Department of Veterans Affairs (the “VA”).

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We typically enter into contracts with third party payors that allow us to perform O&P services for a referred patient and to be reimbursed for our services. These contracts usually have a stated term of one to three years and generally may be terminated without cause by either party on 60 to 90 days’ notice, or on 30 days’ notice if we have not complied with certain licensing, certification, program standards, Medicare or Medicaid requirements, or other regulatory requirements. Reimbursement for services is typically based on a fee schedule negotiated with the third party payor that reflects various factors, including market conditions, geographic area, and number of persons covered. Many of our commercial contracts are indexed to the commensurate Medicare fee schedule that relates to the products or services being provided.

Government reimbursement is comprised of Medicare, Medicaid, and the VA. These payors set maximum reimbursement levels for O&P services and products. Medicare prices are adjusted each year based on the Consumer Price Index for All Urban Consumers (“CPI-U”) unless Congress acts to change or eliminate the adjustment. The CPI-U is adjusted further by an efficiency factor known as the “Productivity Adjustment” or the “Multi-Factor Productivity Adjustment” in order to determine the final rate adjustment each year. There can be no assurance that future adjustments will not reduce reimbursements for O&P services and products from these sources.

We, and the O&P industry in general, are subject to various Medicare compliance audits, including Recovery Audit Contractor (“RAC”) audits, Comprehensive Error Rate Testing (“CERT”) audits, Targeted Probe and Educate (“TPE”) audits, Supplemental Medical Review Contractor (“SMRC”) audits, and Unified Program Integrity Contractor (“UPIC”) audits. TPE audits are generally pre-payment audits, while RAC, CERT, and SMRC audits are generally post-payment audits. UPIC audits can be both pre- or post-payment audits, with a majority currently pre-payment. TPE audits replaced the previous Medicare Administrative Contractor audits. Adverse post-payment audit determinations generally require Hanger to reimburse Medicare for payments previously made, while adverse pre-payment audit determinations generally result in the denial of payment. In either case, we can request a redetermination or appeal, if we believe the adverse determination is unwarranted, which can take an extensive period of time to resolve, currently up to six years or more.

Products & Services

Through our wholly-owned subsidiary, Southern Prosthetic Supply, Inc. (“SPS”), we distribute branded and private label devices, products, and components to independent O&P clinics and other customers. Through our wholly-owned subsidiary, Accelerated Care Plus Corp. (“ACP”), our therapeutic solutions business is a leading provider of rehabilitation technologies and integrated clinical programs to skilled nursing and post-acute rehabilitation providers. Our value proposition is to provide our customers with a full-service “total solutions” approach encompassing proven medical technology, evidence-based clinical programs, and ongoing consultative education and training. Our services support increasingly advanced treatment options for a broader patient population and more medically complex conditions. We currently serve approximately 4,000 skilled nursing and post-acute providers nationwide. Through our SureFit subsidiary, we also manufacture and sell therapeutic footwear for diabetic patients in the podiatric market. We also operate the Hanger Fabrication Network, which fabricates custom O&P devices for our patient care clinics, as well as for independent O&P clinics.

Through our internal “supply chain” organization, we purchase, warehouse, and distribute over 350,000 active SKUs from approximately 750 different suppliers through SPS or directly to our own clinics within our Patient Care segment. Our warehousing and distribution facilities in Nevada, Georgia, Illinois, and Texas provide us with the ability to deliver products to the vast majority of our customers in the United States within two business days. In January 2022, we announced plans to close the warehouse and distribution facilities in Illinois and Texas in the second quarter of 2022, consolidating their operations into our Georgia and Nevada facilities.

Our supply chain organization enables us to:

•centralize our purchasing and thus lower our material costs by negotiating purchasing discounts from manufacturers;

•better manage our patient care clinic inventory levels and improve inventory turns;

•improve inventory quality control;

•encourage our patient care clinics to use the most clinically appropriate products; and

•coordinate new product development efforts with key vendors.

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Effects of the COVID-19 Pandemic

We began to see a reduction in business volumes as a result of the COVID-19 pandemic starting in the last weeks of March 2020. As federal, state, and local authorities implemented social distancing and suppression measures to respond to an increasing number of nationwide COVID-19 infections, we experienced a decrease in our patient appointments and general business volumes. In response, during the last week of March 2020, we made certain changes to our operations, implemented a broad number of cost reduction measures, and delayed certain capital investment projects. Although our business volumes have shown gradual improvement from their initial significant decline in mid-2020, the adverse impact of the COVID-19 pandemic on our business has continued into 2022. As a result, our comparative financial and operational results when viewed as a whole for the periods impacted by the COVID-19 pandemic may not be indicative of future financial and operational performance. The volume effects and our operating responses are discussed further in this section, and the effects of COVID-19 on our financial condition are discussed in the “Financial Condition, Liquidity and Capital Resources” section below. Our results of operations for any quarter during the COVID-19 pandemic may not be indicative of results of operations that may be achieved for a subsequent quarter or the full year, and may not be similar to results of operations experienced in prior years.

Effect on Business Volumes

Patient appointments in our clinics during the first quarter of 2022 increased by approximately 5% as compared to the corresponding period in 2021. During the quarter, our prosthetics and orthotics day-adjusted sales, excluding acquisitions, increased by 6.9% on a per day basis, when compared to the same period in the prior year.

In the early months of 2021, vaccines for combating COVID-19 were approved by the US Food and Drug Administration, and the US government began a phased roll out. However, the initial quantities of the vaccines were limited, and the US government prioritized distribution to front-line health care workers and other essential workers, followed by individual populations that were most susceptible to the severe effects of COVID-19. The lack of achievement of broad immunity coupled with an increase in infections caused by variants contributed to an increase in the duration and effect of COVID-19 on our business volumes and staffing shortages. Specifically, we experienced increased employee absences, particularly due to the more recent Omicron variant’s effect in December of 2021 and January of 2022. We believe our business volumes have been inhibited primarily by reduced medical procedures due to surgical constraints, reduced referral volumes from in-patient and out-patient providers due to decreases in their volumes and the effect of COVID related protocols on their businesses, patient hesitancy to seek care during the pandemic, and increased patient mortality. Additionally, we believe that our patient volumes have been affected by our own labor constraints in technical and administrative positions, employee absences related to COVID-19, as well as decreases in our sales of off-the-shelf orthotic devices.

Nevertheless, the overall adverse impact of the COVID-19 pandemic on our business volumes has diminished and stabilized over time, and while our patient appointment and other business volumes have improved, they have not reached the levels experienced prior to the pandemic.

Operating, Cost Reduction, and Other Responses

Throughout the periods affected by the COVID-19 pandemic, given that our services are considered essential, we have continued to operate our businesses. However, due to the risks posed to our clinicians, other employees, and patients, we made certain changes to our operating practices in order to promote safety and to minimize the risk of virus transmission. These included the implementation of certain patient screening protocols and the relocation of certain administrative and support personnel to a “work at home” environment.

We recommenced our implementation of supply chain and financial systems, further discussed in the “New Systems Implementations” section, in the second quarter of 2021, after we elected to temporarily delay these activities in 2020 as part of our efforts to preserve liquidity. We also resumed construction of the Phoenix, Arizona fabrication facility in the first quarter of 2021, and recommenced activities related to the reconfiguration of our distribution facilities in the second quarter of 2021, after they were suspended in 2020.

While it is not yet a requirement that all Hanger employees be vaccinated, we are strongly encouraging it. As a policy, we adhere to federal, state, and local regulations which increasingly require certain employees, particularly those who provide healthcare services, to be vaccinated. We are closely monitoring the evolving and growing requirements to ensure we are continuing to take the appropriate actions to ensure our impacted employees are compliant.

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Despite the effects of the COVID-19 pandemic on our business volumes, for the foreseeable future, we currently believe that our cash flows from operations and retained cash and cash equivalent balances are sufficient to enable us to fund our operations, capital expenditures and other financial obligations as they become due. Please refer to the “Financial Condition, Liquidity and Capital Resources” section below for a discussion of our liquidity position.

CARES Act

The CARES Act established the Public Health and Social Services Emergency Fund, also referred to as the Cares Act Provider Relief Fund, which set aside $203.5 billion to be administered through grants and other mechanisms to hospitals, public entities, not-for-profit entities and Medicare- and Medicaid-enrolled suppliers and institutional providers. The purpose of these funds is to reimburse providers for lost revenue attributable to the COVID-19 pandemic, such as lost revenues attributable to canceled procedures, as well as to provide support for health-care related expenses. In April 2020, the U.S. Department of Health and Human Services (“HHS”) began making payments to healthcare providers from the $203.5 billion appropriation. These are grants, rather than loans, to healthcare providers, and will not need to be repaid.

During the full year of 2021, we recognized a total benefit of $1.1 million in our consolidated statement of operations within Other operating costs for the Grants we received from HHS. We recognize income related to grants on a systematic and rational basis when it becomes probable that we have complied with the terms and conditions of the grant and in the period in which the corresponding costs or income related to the grant are recognized. We recognized the benefit from the Grants within Other operating costs in our Patient Care segment.

The CARES Act also provided for a deferral of the employer portion of payroll taxes incurred during the COVID-19 pandemic through December 2020. The provisions allowed us to defer half of such payroll taxes until December 2021 and the remaining half until December 2022. We paid the first half in September 2021, and deferred the remaining $5.9 million of payroll taxes within Accrued compensation related costs in the condensed consolidated balance sheet as of March 31, 2022.

Other Products & Services Performance Considerations

As discussed in our 2021 Form 10-K, under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, we generally believe our distribution customers encounter reimbursement pressures similar to those we experience in our own Patient Care segment and, depending on their ability to adapt to the increased claims documentation standards that have emerged in our industry, this may either limit the rate of growth of some of our customers, or otherwise affect the rate of growth we experience in our distribution of O&P componentry to independent providers. In certain circumstances, we may pursue acquisition of inventory in advance to preserve pricing to offset inflation and potential supply chain constraints. During future periods, in addition to the adverse effects of the COVID-19 pandemic discussed above, we currently believe our rate of revenue growth in this segment may decrease as we choose to limit the extent to which we distribute certain low margin orthotic products. Additionally, to the extent that we acquire independent O&P providers who are pre-existing customers of our distribution services, our revenue growth in this segment would be adversely affected as we would no longer recognize external revenue from the components we provide them.

Within our Products & Services segment, in addition to our distribution of products, we provide therapeutic equipment and services to patients at SNFs and other healthcare provider locations. Since 2016, a number of our clients, including several of our larger SNF clients, have been discontinuing their use of our therapeutic services. We believe these discontinuances relate primarily to their overall efforts to reduce the costs they bear for therapy-related services within their facilities. As a part of those terminations of service, in a number of cases, we elected to sell terminating clients the equipment that we had utilized for their locations. Within this portion of our business, we have and continue to respond to these historical trends through the expansion of our products and services offerings.

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Reimbursement Trends

In our Patient Care segment, we are reimbursed primarily through employer-based plans offered by commercial insurance carriers, Medicare, Medicaid, and the VA. The following is a summary of our payor mix, expressed as an approximate percentage of net revenues for the periods indicated:

	For the Three Months Ended March 31,
	2022		2021
Medicare	30.0	%	29.3	%
Medicaid	17.9	%	17.4	%
Commercial insurance / managed care (excluding Medicare and Medicaid managed care)	35.2	%	35.6	%
VA	9.6	%	10.1	%
Private Pay	7.3	%	7.6	%
Patient Care	100.0	%	100.0	%

Patient Care constituted 84.1% and 82.4% of our net revenues for the three months ended March 31, 2022 and 2021, respectively. Our remaining net revenues were provided by our Products & Services segment which derives its net revenues from commercial transactions with independent O&P providers, healthcare facilities, and other customers. In contrast to net revenues from our Patient Care segment, payment for these products and services are not directly subject to third party reimbursement from health care payors.

The amount of our reimbursement varies based on the nature of the O&P device we fabricate for our patients. Given the particular physical weight and size characteristics, location of injury or amputation, capability for physical activity, and mobility, cosmetic, and other needs of each individual patient, each fabricated prostheses and orthoses is customized for each particular patient. The nature of this customization and the manner by which our claims submissions are reviewed by payors makes our reimbursement process administratively difficult.

To receive reimbursement for our work, we must ensure that our clinical, administrative, and billing personnel receive and verify certain medical and health plan information, record detailed documentation regarding the services we provide, and accurately and timely perform a number of claims submission and related administrative tasks. It is our belief the increased nationwide efforts to reduce health care costs has driven changes in industry trends with increases in payor pre-authorization processes, documentation requirements, pre-payment reviews, and pre- and post-payment audits, and our ability to successfully undertake these tasks using our traditional approach has become increasingly challenging. For example, the Medicare contractor for Pricing, Data Analysis and Coding (referred to as “PDAC”) has announced verification requirements and code changes that has reduced the reimbursement level for certain prosthetic feet, and the VA is in the process of reassessing the method it uses to determine reimbursement levels for O&P services and products provided under certain miscellaneous codes.

A measure of our effectiveness in securing reimbursement for our services can be found in the degree to which payors ultimately disallow payment of our claims. Payors can deny claims due to their determination that a physician who referred a patient to us did not sufficiently document that a device was medically necessary or clearly establish the ambulatory (or “activity”) level of a patient. Claims can also be denied based on our failure to ensure that a patient was currently eligible under a payor’s health plan, that the plan provides full O&P benefits, that we received prior authorization, or that we filed or appealed the payor’s determination timely, as well as on the basis of our coding, failure by certain classes of patients to pay their portion of a claim, or for various other reasons. If any portion of, or administrative factor within, our claim is found by the payor to be lacking, then the entirety of the claim amount may be denied reimbursement.

In recent years, we have taken a number of actions to manage payor disallowance trends. These initiatives included: (i) the creation of a centralized revenue cycle management function; (ii) the implementation of a patient management and electronic health record system; and (iii) the establishment of new clinic-level procedures and training regarding the collection of supporting documentation and the importance of diligence in our claims submission processes.

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Payor disallowances is considered an adjustment to the transaction price. Estimated uncollectible amounts due to us by patients are generally considered implicit price concessions and are presented as a reduction of net revenues. These amounts recorded in net revenues within the Patient Care segment for the three months ended March 31, 2022 and 2021 are as follows:

	For the Three Months Ended March 31,
(dollars in thousands)	2022			2021
Gross charges	$	229,922		$	201,452
Less estimated implicit price concessions arising from:
Payor disallowances	8,386			4,514
Patient non-payments	1,718			1,256
Payor disallowances and patient non-payments	10,104			5,770
Net revenues	$	219,818		$	195,682
Payor disallowances	$	8,386		$	4,514
Patient non-payments	1,718			1,256
Payor disallowances and patient non-payments	$	10,104		$	5,770
Payor disallowances %	3.6		%	2.3		%
Patient non-payments %	0.8		%	0.6		%
Percent of gross charges	4.4		%	2.9		%

Included in the results above, are clinics that have been recently acquired. Acquired clinics typically continue to operate on their legacy systems for the first 90 to 180 day before they are fully integrated over to Hanger’s systems and related processes. While operating on their legacy systems, the rate of payor disallowances and patient non-payments run higher than the rates experienced on Hanger’s systems. Excluding the acquisitions on legacy systems for the three months ended March 31, 2022 and March 31, 2021, the percent of payor disallowances and patient non-payments would have been 3.7% and 2.4%, respectively.

During 2021, we benefited from reductions in claims denials and increases in our rates of collection compared to prior periods. This has been due to a variety of factors, including increases in our revenue cycle management staffing and an increased focus on collections and liquidity during a period of reduced business volumes, a possible temporary relaxing of payor review procedures during the COVID-19 pandemic, the benefit of CARES Act funds on the ability of patients to pay their portion of claims and other factors relating to our pre-authorization and documentation procedures for devices.

Acquisitions

In the first quarter of 2022, we completed the acquisition of all the outstanding equity interests of an O&P business for total consideration of $5.0 million, of which $4.0 million was cash consideration, net of cash acquired, and $1.0 million was issued in the form of notes to shareholders at fair value.

During the second quarter of 2022 to date, we completed the acquisition of one O&P business for a total purchase price of $3.2 million. Total consideration transferred for this acquisition is comprised of $2.4 million in cash consideration and $0.8 million in the form of notes to shareholders at fair value. Due to the proximity in time of this transaction to the filing of this Form 10-Q, it is not practicable to provide a preliminary purchase price allocation of the fair value of the assets purchased and liabilities assumed in the acquisition. Acquisition-related expenses related to this transaction were not material.

In March 2022, we entered into a definitive share purchase agreement in connection with the acquisition of one O&P business for a total purchase price of approximately $9.0 million. Due to the proximity in time of this transaction to the filing of this Form 10-Q, it is not practicable to provide a preliminary purchase price allocation of the fair value of the assets acquired and liabilities assumed in this acquisition. Acquisition-related expenses were not material for this transaction.

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During 2021, we completed the following acquisitions of O&P clinics with the intention of expanding the geographic footprint of our patient care offerings through the acquisition of these high quality O&P providers. None of the acquisitions were individually material to our financial position, results of operations, or cash flows.

•In the first quarter of 2021, we completed the acquisitions of all the outstanding equity interests of three O&P businesses and the assets of one O&P business for total consideration of $24.2 million, of which $19.2 million was cash consideration, net of cash acquired, $4.0 million was issued in the form of notes to shareholders at fair value, and $1.0 million in additional consideration.

•In the second quarter of 2021, we completed the acquisitions of all the outstanding equity interests of two O&P businesses for total consideration of $21.0 million, of which $16.0 million was cash consideration, net of cash acquired, $4.9 million was issued in the form of notes to shareholders at fair value, and $0.1 million in additional consideration.

•In the third quarter of 2021, we completed the acquisitions of all the outstanding equity interests of three O&P businesses and the assets of one O&P business for total consideration of $6.2 million, of which $3.9 million was cash consideration, net of cash acquired, $1.5 million was issued in the form of notes to shareholders at fair value, and $0.8 million in additional consideration.

•In the fourth quarter of 2021, we completed the acquisitions of all the outstanding equity interests of eight O&P businesses for total consideration of $53.1 million, of which $40.8 million was cash consideration, net of cash acquired, and $12.3 million was issued in the form of notes to shareholders at fair value.

Acquisition-related costs are included in general and administrative expenses in our condensed consolidated statements of operations. Total acquisition-related costs incurred during the three months ended March 31, 2022 were $0.3 million, which includes those costs for transactions that are in progress or were not completed during the respective period. Acquisition-related costs incurred for the acquisition completed during the three months ended March 31, 2022 were $0.1 million. Total acquisition-related costs incurred during the year ended December 31, 2021 were $2.1 million, which includes those costs for transactions that were in progress or not completed during the respective period. Acquisition-related costs incurred for acquisitions completed during the year ended December 31, 2021 were $1.6 million.

New Systems Implementations

During 2019, we commenced the design, planning, and initial implementation of new financial and supply chain systems (“New Systems Implementations”), and planned to invest in new servers and software that operate as a part of our technology infrastructure. We recommenced our New Systems Implementations activities in the second quarter of 2021, and transitioned our corporate financial systems to the Oracle Cloud Financials platform in the third quarter of 2021, after we elected in 2020 to temporarily delay our New Systems Implementations as part of our efforts to preserve liquidity.

In connection with our New Systems Implementations, for the three months ended March 31, 2022 and 2021, we expensed $0.4 million and $0.6 million, respectively. For the year ended December 31, 2021, we expensed $5.2 million. We currently anticipate that we will spend approximately $3 million to $5 million for the full year 2022 on these systems.

As of March 31, 2022, we capitalized $6.9 million of implementation costs for cloud computing arrangements, net of accumulated amortization, and recorded in Other current assets and Other assets in the condensed consolidated balance sheet.

Personnel

While we have traditionally been able to recruit and retain adequate staffing to operate and support our business, our ability to support growth is dependent on our ability to add new personnel. Nevertheless, as are other employers, we are currently finding it difficult to recruit and retain personnel in certain positions, including clinic front office administrative, distribution center, and fabrication center technician positions. In certain cases, we have also found it necessary to make individual market adjustments for clinical and professional staff to attract or retain them. Our inability to successfully recruit and maintain staffing levels for these positions has and could continue to introduce some constraints on our ability to achieve our revenue growth objectives. In cases where we have open clinic administrative or technician positions, or these positions are filled with inexperienced or new personnel, our clinicians find it necessary to augment the activities performed by these roles, which can slow the speed of our patient service.

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In order to attract and retain personnel, we may find it necessary to further increase wages in these areas. Additionally, when coupled with the generally fixed nature of our reimbursement arrangements, increases in our personnel costs caused by current inflation conditions may put increasing pressure on our ability to maintain or increase our margins. Please refer to Part II, Item 1A. “Risk Factors” contained in our 2021 Form 10-K.

Seasonality

We believe our business is affected by the degree to which patients have otherwise met the deductibles for which they are responsible in their medical plans during the course of the year. The first quarter is normally our lowest relative net revenue quarter, followed by the second and third quarters, which are somewhat higher and consistent with one another. Due to the general fulfillment by patients of their health plan co-payments and deductible requirements towards the year’s end, our fourth quarter is normally our highest revenue producing quarter. However, historical seasonality patterns have been impacted by the COVID-19 pandemic and may not be reflective of our prospective financial results of operations. Please refer to the “Effects of the COVID-19 Pandemic” section for further discussion.

Our results are also affected, to a lesser extent, by our holding of an education fair in the first quarter of each year. This event is conducted to assist our clinicians in maintaining their training and certification requirements and to facilitate a national meeting with our clinical leaders. We also invite manufacturers of the componentry for the devices we fabricate to these annual events so they can demonstrate their products and otherwise assist in our training process. Due to the COVID-19 pandemic, the in-person event was cancelled in Q1 2022, and the event was held virtually in 2021. We anticipate resuming an in-person event in 2023. During the three months ended March 31, 2021, we spent $0.3 million on travel and other costs associated with this event. In addition to the costs we incur associated with this annual event, we also lose the productivity of a significant portion of our clinicians during the period in which this event occurs, which contributes to the lower seasonal revenue level we experience during the first quarter of each year.

Critical Accounting Policies and Estimates

Our analysis and discussion of our financial condition and results of operations is based upon the condensed consolidated financial statements that have been prepared in accordance with GAAP. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. GAAP provides the framework from which to make these estimates, assumptions, and disclosures. We have chosen accounting policies within GAAP that management believes are appropriate to fairly present, in all material respects, our operating results, and financial position. We believe the following accounting policies are critical to understanding our results of operations and the more significant judgments and estimates used in the preparation of our condensed consolidated financial statements:

•Revenue recognition

•Accounts receivable, net

•Inventories

•Business combinations

•Goodwill and other intangible assets, net

•Income taxes

The use of different estimates, assumptions, or judgments could have a material effect on reported amounts of assets, liabilities, revenue, expenses, and related disclosures as of the date of the financial statements and during the reporting period. Critical accounting policies and estimates are described in our 2021 Form 10-K, under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Note A - “Organization and Summary of Significant

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Accounting Policies” contained within these condensed consolidated financial statements. There have been no material updates to those critical accounting policies and estimates as contained in the 2021 Form 10-K.

Reclassifications

We have reclassified certain amounts in the prior year condensed consolidated financial statements to be consistent with the current year presentation. These relate to immaterial classifications within expense line items in the condensed consolidated statements of operations.

Results of Operations

Our results of operations for the three months ended March 31, 2022 and 2021 were as follows (unaudited):

	For the Three Months Ended March 31,				Percent Change (1)
(dollars in thousands)	2022		2021		2022 vs 2021
Net revenues	$	261,287	$	237,470	10.0	%
Material costs	85,592		75,170		13.9	%
Personnel costs	101,675		89,880		13.1	%
Other operating costs	36,168		31,498		14.8	%
General and administrative expenses	32,442		30,903		5.0	%
Depreciation and amortization	7,955		7,998		(0.5)	%
Operating expenses	263,832		235,449		12.1	%
(Loss) income from operations	(2,545)		2,021		NM
Interest expense, net	7,385		7,340		0.6	%
Non-service defined benefit plan expense	160		167		(4.2)	%
Loss before income taxes	(10,090)		(5,486)		(83.9)	%
Benefit for income taxes	(2,113)		(2,156)		2.0	%
Net loss	$	(7,977)	$	(3,330)	(139.5)	%

(1) NM - Not Meaningful

During these periods, our operating expenses as a percentage of net revenues were as follows:

	For the Three Months Ended March 31,
	2022		2021
Material costs	32.8	%	31.7	%
Personnel costs	38.9	%	37.8	%
Other operating costs	13.9	%	13.2	%
General and administrative expenses	12.4	%	13.0	%
Depreciation and amortization	3.0	%	3.4	%
Operating expenses	101.0	%	99.1	%

Three Months Ended March 31, 2022 Compared to the Three Months Ended March 31, 2021

Relevance of First Quarter Results to Comparative and Future Periods. As discussed in “Effects of the COVID-19 Pandemic” above, commencing late in the first quarter of 2020, our revenues and operating results began to be adversely affected by the COVID-19 pandemic, a trend that continued into 2022. The effects of this public health emergency on our revenues and earnings impacted the comparison to our historical financial results. As a result, our comparative financial and operational results when viewed as a whole for the periods impacted by the COVID-19 pandemic may not be indicative of future financial and operational performance. Please refer to the “Effects of the COVID-19 Pandemic” section above and the “Financial Condition, Liquidity and Capital Resources” section below for additional forward-looking information concerning our current expectations regarding the effect of the COVID-19 pandemic on our prospective results and financial condition.

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Net revenues. Net revenues for the three months ended March 31, 2022 were $261.3 million, an increase of $23.8 million, or 10.0%, from $237.5 million for the three months ended March 31, 2021. Net revenues by operating segment, after elimination of intersegment activity, were as follows:

	For the Three Months Ended March 31,				Change		Percent Change
(dollars in thousands)	2022		2021
Patient Care	$	219,818	$	195,682	$	24,136	12.3	%
Products & Services	41,469		41,788		(319)		(0.8)	%
Net revenues	$	261,287	$	237,470	$	23,817	10.0	%

Patient Care net revenues for the three months ended March 31, 2022 were $219.8 million, an increase of $24.1 million, or 12.3%, from $195.7 million for the same period in the prior year. Same clinic revenues increased $13.2 million for the three months ended March 31, 2022 compared to the same period in the prior year, reflecting an increase of 6.9% on a per-day basis. This increase is driven primarily by volume and mix with a smaller increase in rate. Net revenues from acquired clinics increased $11.2 million, and revenues from consolidations and other services decreased $0.3 million.

Net revenue growth was adversely affected during the period by an increase in the relative rate of disallowed and patient non-payment revenue. As discussed in “Reimbursement Trends” above, these items constituted 4.4% of gross charges in the three month period ended March 31, 2022 compared to 2.9% for the three month period ended March 31, 2021. During the past twelve month period, disallowed and patient non-payment amounts have been 4.3% of gross charges, and as such, we believe the level reported in the first quarter to be more indicative of current trends.

Prosthetics constituted approximately 52.1% of our total Patient Care revenues for the three months ended March 31, 2022 and 51.7% for the same period in 2021, excluding the impact of acquisitions. Prosthetic revenues for the three months ended March 31, 2022 were 7.7% higher, on a per-day basis, than the same period in the prior year, excluding the impact of acquisitions. Orthotics, shoes, inserts, and other products increased by 5.9% on a per-day basis compared to the same comparative prior periods, excluding the impact of acquisitions.

Products & Services net revenues for the three months ended March 31, 2022 were $41.5 million, a decrease of $0.3 million, or 0.8% from the same period in the prior year. This was primarily attributable to a decrease in net revenues from therapeutic solutions of $1.0 million, or 9.4% primarily as a result of historical customer lease cancellations and discounts, partially offset by lease installations. The decrease is partially offset by an increase of $0.7 million, or 2.4%, in the distribution of O&P componentry to independent providers in the period stemming primarily from lower volumes in the same period of 2021 due to the COVID-19 pandemic, as discussed in the “Effects of the COVID-19 Pandemic” section above.

Material costs. Material costs for the three months ended March 31, 2022 were $85.6 million, an increase of $10.4 million or 13.9%, from the same period in the prior year. Total material costs as a percentage of net revenues increased to 32.8% in the three months ended March 31, 2022 from 31.7% in the three months ended March 31, 2021 primarily due to freight, acquisitions, and use of third-party fabricators. While we have not experienced significant inflation in our material costs during the current quarter, we believe the effect of inflation may increase during the remainder of 2022. Material costs by operating segment, after elimination of intersegment activity, were as follows:

	For the Three Months Ended March 31,				Change		Percent Change
(dollars in thousands)	2022		2021
Patient Care	$	70,976	$	59,922	$	11,054	18.4	%
Products & Services	14,616		15,248		(632)		(4.1)	%
Material costs	$	85,592	$	75,170	$	10,422	13.9	%

Patient Care material costs increased $11.1 million, or 18.4%, for the three months ended March 31, 2022 compared to the same period in the prior year as a result of the increase in segment net sales, additional costs as a result of our acquisitions, freight, and increase in our use of third-party fabricators. At the start of the first quarter, we were unsuccessful in opening our new fabrication facility in Phoenix, Arizona as we had planned, and this was a contributing factor to our increased use of higher cost third-party fabricators to meet our patient delivery needs. We were able to open this facility later during the first quarter and our use of third party fabricators has decreased. Freight cost increases have primarily related to increased fuel

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surcharges and higher container costs. We currently anticipate that higher freight costs will continue to affect our material costs in future periods. Patient Care material costs as a percent of segment net revenues increased to 32.3% for the three months ended March 31, 2022 from 30.6% for the three months ended March 31, 2021.

Products & Services material costs decreased $0.6 million, or 4.1%, for the three months ended March 31, 2022 compared to the same period in the prior year. As a percent of net revenues in the Products & Services segment, material costs were 35.2% for the three months ended March 31, 2022 as compared to 36.5% in the same period of 2021. The decrease in cost of materials as a percent of segment net revenues was primarily due to product mix within the segment. However, in a similar fashion to our Patient Care segment, increases in freight costs have also affected our material costs and margin in this segment, as we rebill only a portion of our freight costs to our third party customers.

Personnel costs. Personnel costs for the three months ended March 31, 2022 were $101.7 million, an increase of $11.8 million, or 13.1%, from $89.9 million for the same period in the prior year. Personnel costs by operating segment were as follows:

	For the Three Months Ended March 31,				Change		Percent Change
(dollars in thousands)	2022		2021
Patient Care	$	86,409	$	75,754	$	10,655	14.1	%
Products & Services	15,266		14,126		1,140		8.1	%
Personnel costs	$	101,675	$	89,880	$	11,795	13.1	%

Personnel costs for the Patient Care segment were $86.4 million for the three months ended March 31, 2022, an increase of $10.7 million, or 14.1%, from $75.8 million in the same period of the prior year. The increase in Patient Care personnel costs during the three months ended March 31, 2022 was primarily related to an increase in salary expense of $7.6 million from the three months ended March 31, 2021. Additionally, incentive compensation and other personnel expenses increased $1.3 million, commissions increased $0.8 million, payroll taxes increased $0.5 million, and benefits increased $0.5 million compared to the three months ended March 31, 2021.

Personnel costs in the Products & Services segment were $15.3 million for the three months ended March 31, 2022, an increase of $1.1 million compared to the same period in the prior year. The increase is primarily related to an increase in salary expense of $1.4 million from the three months ended March 31, 2021. Bonus, commissions, benefits, and other personnel cost decreased $0.3 million for the three months ended March 31, 2022 compared to the same period in the prior year.

Other operating costs. Other operating costs for the three months ended March 31, 2022 were $36.2 million, an increase of $4.7 million, or 14.8%, from $31.5 million for the same period in the prior year. Rent, utilities, occupancy, and office expenses increased $1.8 million, travel increased $1.0 million, professional fees increased $0.7 million, and other expenses increased $1.2 million as compared to the same period in the prior year.

General and administrative expenses. General and administrative expenses for the three months ended March 31, 2022 were $32.4 million, an increase of $1.5 million, or 5.0%, from the same period in the prior year. The increase is the result of a $0.9 million increase in salary expense, $0.8 million increase in other expenses, and $0.1 million increase in incentive compensation and other personnel costs, partially offset by a $0.3 million decrease in equity-based compensation compared to the three months ended March 31, 2021.

Depreciation and amortization. Depreciation and amortization for both three months ended March 31, 2022 and March 31, 2021 was $8.0 million. Amortization expense increased $0.6 million and depreciation expense decreased $0.6 million when compared to the same period in the prior year.

Interest expense, net. Interest expense for the three months ended March 31, 2022 increased 0.6% to $7.4 million from $7.3 million for the same period in the prior year.

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Benefit for income taxes. The benefit for income taxes for the three months ended March 31, 2022 was $2.1 million, or 20.9% of loss before income taxes, compared to a benefit of $2.2 million, or 39.3% of loss before income taxes for the three months ended March 31, 2021. The decrease in the effective tax rate for the three months ended March 31, 2022 compared with the three months ended March 31, 2021 is primarily attributable to a decrease in pre-tax book income, nondeductible permanent items, and a windfall for the three months ended March 31, 2021 compared to a shortfall for the three months ended March 31, 2022. Our effective tax rate for the three months ended March 31, 2022 is similar to the federal statutory tax rate of 21%, but the difference consists primarily of research and development credits offset by non-deductible expenses and shortfall from share-based compensation. Our effective tax rate for the three months ended March 31, 2021 differed from the federal statutory tax rate of 21% primarily due to research and development credits, non-deductible expenses, and windfall from share-based compensation.

We evaluate our deferred tax assets quarterly to determine whether adjustments to the valuation allowance are appropriate in light of changes in facts or circumstances, such as changes in expected future pre-tax earnings, tax law, interactions with taxing authorities, and developments in case law. Our material assumptions include forecasts of future pre-tax earnings and the nature and timing of future deductions and income represented by the deferred tax assets and liabilities, all of which involve the exercise of significant judgment. As of March 31, 2022, our valuation allowance was approximately $2.1 million.

For the year ending December 31, 2022, we estimate a research and development tax credit of $2.7 million, net of tax reserves. We record the tax benefit, net of tax reserves, as a deferred tax asset. For the year ended December 31, 2021, we recognized research and development tax credits of $4.3 million, net of tax reserves.

Financial Condition, Liquidity, and Capital Resources

Liquidity

Our cash and cash equivalents, and any amounts we have available for borrowing under our revolving credit facility, are immediately available to provide cash for our operations and capital expenditures. We refer to the sum of these two amounts as our “liquidity.”

At March 31, 2022, we had total liquidity of $167.2 million, which reflected a decrease of $23.8 million from the $191.0 million in liquidity we had as of December 31, 2021. Our liquidity at March 31, 2022 was comprised of cash and cash equivalents of $37.4 million and $129.8 million in available borrowing capacity under our $135.0 million revolving credit facility. This decrease in liquidity primarily related to a decrease in cash of $24.3 million, comprised of net cash used in operations of $8.3 million, capital expenditures of $3.9 million, net of proceeds from sale of property, plant and equipment, cash paid for acquisitions, net of cash acquired, of $4.0 million, and net cash used in financing activities of $8.1 million.

Our Credit Agreement contains customary representations and warranties, as well as financial covenants, including that we maintain compliance with certain leverage and interest coverage ratios. If we are not compliant with our debt covenants in any period, absent a waiver or amendment of our Credit Agreement, we may be unable to access funds under our revolving credit facility. We were in compliance with our debt covenants as of March 31, 2022.

For additional information, please refer to the Liquidity Outlook section below.

Working Capital and Days Sales Outstanding

At March 31, 2022, we had working capital of $79.1 million compared to working capital of $91.5 million at December 31, 2021. Our working capital decreased $12.4 million during the three months ended March 31, 2022 due to a decrease in current assets of $38.9 million, partially offset by a decrease in current liabilities of $26.5 million.

The decrease in current assets of $38.9 million was primarily attributable to a decrease in Cash and cash equivalents of $24.3 million discussed in the “Liquidity” section above, a decrease in Accounts receivable, net of $12.4 million, and a decrease in Inventories of approximately $4.2 million. These decreases were offset by an increase of approximately $2.0 million in Other current assets.

The decrease in current liabilities of $26.5 million was primarily attributable to a net decrease in accrued incentive compensation related costs of $17.2 million, primarily due to the payment of $26.4 million in annual incentive compensation and the employer 401(k) matching contribution made during the first quarter of the year. The remainder of the decrease is

34

primarily attributable to a decrease of $5.6 million in Accounts payable, of $2.3 million in Accrued expenses and other current liabilities and of $1.4 million in Current portion of long-term debt.

Days sales outstanding (“DSO”) is a calculation that approximates the average number of days between the billing for our services and the date of our receipt of payment, which we estimate using a 90-day rolling period of net revenue. This computation can provide a relative measure of the effectiveness of our billing and collections activities. Clinics acquired during the past 90-day period are excluded from the calculation. As of March 31, 2022, our DSO was 48 days, compared to a DSO of 45 days as of March 31, 2021. The increase is partially attributable to a larger increase in net revenue relative to accounts receivable due to the 2022 Medicare rate increase, as well as the impact of acquisitions completed in the fourth quarter of 2021.

Sources and Uses of Cash for the Three Months Ended March 31, 2022 Compared to March 31, 2021

Net cash flows used in operating activities decreased $34.1 million to $8.3 million for the three months ended March 31, 2022 from $42.4 million for the three months ended March 31, 2021. The most significant decreases were due to $19.7 million in Accrued compensation related costs and $8.0 million in Accounts payable.

Cash flows used in investing activities decreased $17.6 million to $7.9 million for the three months ended March 31, 2022, from $25.5 million for the three months ended March 31, 2021. The decrease in cash used in investing activities was due to a decrease of $15.4 million in cash paid for acquisitions, net of cash acquired, and $2.2 million less in capital expenditures, net of proceeds from sale of property, plant and equipment.

Cash flows used in financing activities were $8.1 million for the three months ended March 31, 2022, as compared to cash used in financing activities of $6.4 million for the three months ended March 31, 2021. The increase in cash used in financing activities is primarily due to an increase in payments on Seller Notes of $2.6 million, offset by a decrease in payment of employee taxes on share-based compensation and other activities of $0.9 million.

Effect of Indebtedness

As of March 31, 2022, we have a Senior Credit Facility (the “Credit Agreement”) which provides for (i) a Term Loan B facility with $484.8 million outstanding which is due in quarterly principal installments with all remaining outstanding principal due at maturity in March 2025 and (ii) a revolving credit facility with an availability of $135.0 million which matures on November 23, 2026 (subject to a springing maturity if the term loans outstanding under the Existing Credit Agreement are not repaid prior to the date that is 91 days prior to the stated maturity thereof). Availability under the revolving credit facility is reduced by outstanding letters of credit, which were $5.2 million as of March 31, 2022, resulting in approximately $129.8 million in available borrowing capacity. For additional discussion surrounding the Credit Agreement, see Note K - “Debt and Other Obligations,” in the notes to the condensed consolidated financial statements contained elsewhere in this report. Cash paid for interest totaled $6.5 million and $6.6 million for the three months ended March 31, 2022 and 2021, respectively.

Liquidity Outlook

Our primary sources of liquidity are cash and cash equivalents, and available borrowings under our revolving credit facility. Due to the economic and social activity impacts outlined in the “Effects of the COVID-19 Pandemic” section above, we expect the continuing disruption to have an unfavorable impact on our operations, financial condition, and results of operations. While the duration and extent of the impact from the COVID-19 pandemic on our operations and liquidity depends on future developments which cannot be predicted with certainty, we believe that our existing sources of liquidity, when combined with our operating cash flows and other measures taken to enhance our liquidity position and cost structure, will continue to allow us to finance our operations for the foreseeable future. Please refer to the “Effects of the COVID-19 Pandemic” section above for additional discussion.

Our primary future cash requirements, as discussed in our 2021 Form 10-K, will be for acquisitions of O&P providers, debt payments, capital expenditures, payment of deferred payroll taxes as discussed in the “Effects of the COVID-19 Pandemic” section above, and to fund operations. We expect to continue to invest in capital expenditures, and in deferred cloud implementation expenditures, in connection with our planned reconfiguration of distribution facilities and our related implementation of supply chain and financial systems. We anticipate that we will continue to pursue acquisitions and other growth initiatives that we expect to provide value to our shareholders. Additionally, as business volumes return to more

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typical pre-pandemic levels, it is likely that we will experience a natural corresponding increase in our investment in working capital.

With these factors in mind, we continue to anticipate we will generate positive operating cash flows that, together with our retained cash and revolving credit facility, will allow us to invest in acquisitions and other growth opportunities to provide value to our shareholders. From time to time, we may seek additional funding through the issuance of debt or equity securities to provide additional liquidity to fund acquisitions aligned with our strategic priorities and for other general corporate purposes.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our future financial results are subject to a variety of risks, including interest rate risk. Our interest expense is sensitive to changes in market interest rates. To manage the impact of the interest rate risk associated with our Credit Agreement, we enter into interest rate swaps from time to time, effectively converting a portion of the cash flows related to variable-rate debt into fixed-rate cash flows.

As of March 31, 2022, we had a combined principal amount of $484.8 million of variable rate debt under our Term Loan B and revolving credit facility and a notional amount of $275.0 million of fixed to variable interest rate swap agreements. Based on our hedged and unhedged positions, a hypothetical increase in interest rates of 1.0% would impact our annual interest expense by $2.1 million and a decrease in interest rates of 1.0% would impact our annual interest expense by $1.0 million.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures.

Management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and effectiveness of our disclosure controls and procedures as of March 31, 2022. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of March 31, 2022.

Changes in Internal Control over Financial Reporting

We are implementing an enterprise resource planning (“ERP”) system using a phased approach, and transitioned from our prior corporate financial systems to the new ERP system in the third quarter of 2021. In connection with the implementation, we modified the design and documentation of certain internal control processes and procedures as necessary. We will continue to evaluate each phase’s effect on our internal controls over financial reporting.

In accordance with Rule 13a-15(d) of the Exchange Act and with the participation of our Chief Executive Officer and our Chief Financial Officer, management determined there have been no material changes to our internal control over financial reporting during the three month period ended March 31, 2022.

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PART II.    OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Not applicable.

ITEM 1A. RISK FACTORS

Not applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There has been no share repurchase activity during the three months ended March 31, 2022.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

There have been no defaults upon senior securities during the three months ended March 31, 2022.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None to report.

ITEM 6. EXHIBITS

The documents in the accompanying Exhibits Index are filed, furnished, or incorporated by reference as part of this report and such Exhibits Index is incorporated herein by reference.

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EXHIBITS INDEX

Exhibit No.	Document
10.1	Supplemental Executive Retirement Plan, as amended and restated effective May 1, 2013.
31.1	Written Statement of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002. (Filed herewith.)
31.2	Written Statement of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002. (Filed herewith.)
32	Written Statement of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002. (Filed herewith.)
101.INS	XBRL Instance Document. (Filed herewith.)
101.SCH	XBRL Taxonomy Extension Schema. (Filed herewith.)
101.CAL	XBRL Taxonomy Extension Calculation Linkbase. (Filed herewith.)
101.LAB	XBRL Taxonomy Extension Label Linkbase. (Filed herewith.)
101.PRE	XBRL Taxonomy Extension Presentation Linkbase. (Filed herewith.)
101.DEF	XBRL Taxonomy Extension Definition Linkbase. (Filed herewith.)
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 

		HANGER, INC.
Dated: May 4, 2022	By:	/s/ THOMAS E. KIRALY
		Thomas E. Kiraly
		Executive Vice President and
		Chief Financial Officer
		(Principal Financial Officer)
Dated: May 4, 2022	By:	/s/ GABRIELLE B. ADAMS
		Gabrielle B. Adams
		Vice President and Chief Accounting Officer
		(Principal Accounting Officer)

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EX-10.1

HANGER, INC.

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

(As Amended and Restated Effective As of May 1, 2013)

Table of Contents

Page

Article I Purpose	1
1.1.    Effective Date	1
1.2.    Purpose	1
1.3.    Legal Compliance	1
Article II Definitions	1
2.1.    “Accrued Benefit”	1
2.2.    “Administrator”	2
2.3.    “Applicable Interest Rate”	2
2.4.    “Base Salary”	2
2.5.    “Beneficiary”	2
2.6.    “Board”	2
2.7.    “Change in Control”	2
2.8.    “Code”	2
2.9.    “Committee”	2
2.10.    “Company”	2
2.11.    “Effective Date”	3
2.12.    “Employer”	3
2.13.    “ERISA”	3
2.14.    “Final Average Salary”	3
2.15.    “Participant”	3
2.16.    “Plan”	3
2.17.    “Present Value”	3
2.18.    “Separation from Service”	3
2.19.    “Spouse”	3
2.20.    “Year of Credited Service”	3
2.21.    “Year of Vesting Service”	4
Article III PLAN ADMINISTRATION	4
3.1.    Administrator	4
3.2.    Administrator Duties	4
3.3.    Information	5
3.4.    Claims Procedure	5
3.5.    Indemnification	6
Article IV Eligibility for Participation and Entitlement to Accrued Benefit	6
4.1.    Designation of Participants	6
4.2.    Entitlement to Accrued Benefits	6
4.3.    Forfeiture for Certain Reasons	6
Article V Vesting	7
5.1.    Vesting	7
5.2.    Forfeiture If Not Vested	7

i

Article VI Amount of Accrued Benefit	7
6.1.    Amount of Accrued Benefit	7
Article VII Form and Commencement of Payments to a Participant	8
7.1.    Form	8
7.2.    Commencement	8
7.3.    Reduction for Early Commencement	8
7.4.    Small Payment Rules	8
7.5.    Death While In Pay Status	9
7.6.    Withholding of Taxes and Amounts Due	9
7.7.    No Representation as to Tax Consequences	9
Article VIII Death BenefitS BEFORE PAYMENTS COMMENCE	9
8.1.    Amount	9
8.2.    Form	9
8.3.    Commencement.	9
Article IX Effect of Change in Control	10
9.1.    Vesting Accelerated for Active Participants	10
9.2.    Plan May Be Terminated and Paid Out	10
9.3.    Rabbi Trust To Be Established and Funded	10
Article X Amendment or Termination	10
10.1.    Amendment or Termination by Board	10
10.2.    No Reduction or Delay of Benefit Payments	11
10.3.    Cash Out on Plan Termination	11
Article XI MISCELLANEOUS	11
11.1.    Unfunded Plan; Unsecured Liability	11
11.2.    No Contract of Employment	11
11.3.    Nonalienation of Benefits	11
11.4.    Effect on Retirement Plans	12
11.5.    Severability	12
11.6.    Merger, Consolidation or Acquisition	12
11.7.    Governing Law	12
11.8.    Binding Effect	12

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Article IPURPOSE

1.1.Effective Date

. HANGER, INC., a Delaware corporation (the “Company”), together with its subsidiaries and affiliates (collectively referred to herein as the “Employer”), established this Supplemental Executive Retirement Plan (the “Plan”), as of the Effective Date. The Plan was previously amended and restated as of January 1, 2005, to conform to the requirements of the American Jobs Creation Act of 2004 and new Code Section 409A, and was further revised effective as of January 1, 2011, to change the formula for determining the accrued benefits due to employees who initially become participants on or after January 1, 2011. The Plan is now amended and restated to reflect the current name of the Company and to make other ministerial changes to the Plan.

1.2.Purpose

. The purpose of the Plan is to promote the best interests of the Company and Company stockholders by attracting and retaining key management employees having a strong interest in the success of the Company and its subsidiaries and affiliates and encouraging their service, loyalty and good counsel.

1.3.Legal Compliance

. It is the intention of the Company:

(a)That the Plan and all elections, deferrals, rights and features, notwithstanding any written terms or provisions to the contrary, be operated in good faith compliance with Code Section 409A; and

(b)That the Plan will be amended or restated retroactively to January 1, 2005, or any later appropriate date, if necessary and without requiring the consent of any Participant or Beneficiary, in order that the Plan be in compliance with Code Section 409A; and

(c)That the Plan shall at all times be administered and interpreted in such a manner as to constitute an unfunded Plan for a select group of management or highly compensated employees, so as to qualify for all available exemptions from the provisions of Title I of ERISA; and

(d)That the Plan constitutes a nonqualified deferred compensation plan for all purposes of Code Section 3121(v)(2) (“Special Timing Rule”) and 4 U. S. C. Section 114 (“Pension Source Act”).

Article IIDEFINITIONS

The following terms have the following meanings unless the context clearly indicates otherwise:

1.1.“Accrued Benefit”

means the annual benefit amount calculated pursuant to Article VI.

1.2.“Administrator”

means the person designated by the Committee pursuant to Article III to administer the Plan on behalf of the Employers. As of January 1, 2011, such person is the Vice President of Human Resources.

1.3.“Applicable Interest Rate”

means one hundred twenty percent (120%) of the applicable federal long-term rate rounded to the nearest two-tenths of one percent, compounded annually, in effect under Code Section 1274 for the month for which the determination is made.

1.4.“Base Salary”

means the annual base salary paid by an Employer to an employee during a calendar year, prior to giving effect to any salary reduction agreement to which Code Sections 125, 132(f), or 402(g)(3) applies or any voluntary deferred compensation election, but not including any other kind of extra or additional compensation. If the rate of Base Salary changes during a calendar year the higher rate shall be annualized to determine Base Salary for the year.

1.5.“Beneficiary”

means the person or entity designated by a Participant to be his or her beneficiary for purposes of receiving benefits under the Plan in the event the Participant dies before receiving payment in full of the Participant’s vested Accrued Benefit. A designation of Beneficiary shall be valid and in effect only if a properly executed designation, in such form as the Administrator prescribes for this purpose, is filed and received by the Administrator before the death of the Participant. If a Participant designates his or her Spouse as a Beneficiary, such Beneficiary designation automatically shall become null and void on the date of the Participant’s divorce or legal separation from such Spouse. If a valid Beneficiary designation is not in effect at the time of the Participant’s death, the estate of the Participant is deemed to be the sole Beneficiary. If the Administrator is uncertain as to the identity of the Participant’s Beneficiary, the Administrator may deem the estate of the Participant to be the sole Beneficiary. A legal minor shall not qualify as a Beneficiary under the Plan.

1.6.“Board”

means the Board of Directors of Hanger, Inc.

1.7.“Change in Control”

means a change in the ownership of the Company, a change in the effective control of the Company, or a change in the ownership of a substantial portion of the assets of the Company, all as defined by Code Section 409A and the guidance applicable to interpreting it.

1.8.“Code”

means the Internal Revenue Code of 1986, as it may be amended from time to time and as interpreted by regulations and rulings issued pursuant to the Code. Any references to a specific provision shall be deemed to include references to any successor Code provision.

1.9.“Committee”

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means the Compensation Committee of the Board, which is authorized to oversee, administer and amend the Plan, or any successor committee selected by the Board for this purpose.

1.10.“Company”

means Hanger, Inc., or any successor.

1.11.“Effective Date”

means January 1, 2004.

1.12.“Employer”

means the Company and any of its subsidiaries and affiliates.

1.13.“ERISA”

means the Employee Retirement Income Security Act of 1974, as amended and as interpreted by regulations and rulings issued pursuant to ERISA. Any references to a specific provision shall be deemed to include references to any successor ERISA provision.

1.14.“Final Average Salary”

means a Participant’s average Base Salary for the three (3) calendar years during which the Participant’s Base Salary was the highest within the last five (5) consecutive calendar years ending with the calendar year in which occurs the Participant’s termination of employment. If the Participant has fewer than three (3) averaging years for this purpose, the actual number of years in which Base Pay is earned shall be used to determine Final Average Salary.

1.15.“Participant”

means an employee of an Employer who is employed in a key management position and who is initially designated in this Plan, or subsequently in writing by the Committee, as a Participant; provided, however, if a Participant transfers out of employment in a key management position, but remains an employee, the Committee shall, in its discretion, determine the extent to which Plan benefits shall continue to accrue and/or vest following such transfer.

1.16.“Plan”

means the Hanger, Inc. Supplemental Executive Retirement Plan, as contained in this document and including all amendments.

1.17.“Present Value”

means the present value of Accrued Benefits, as determined by the Administrator, discounted on the basis of the Applicable Interest Rate to the date of determination.

1.18.“Separation from Service”

means an employee’s last day of work or, if later, the expiration date of any required notice period applicable to the employee; provided, however, that no Separation from Service shall be deemed to have occurred earlier than the date as of which the employee has incurred a “separation from service” within the meaning of Code Section 409A, including Treas. Reg. 1.409A-1(h), determined by applying the default rules thereof.

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1.19.“Spouse”

means the surviving spouse of the Participant, as such term is defined in the law of the State of residency of the Participant, and within the meaning of the federal Defense of Marriage Act (Pub. L. 104-99), at the applicable time.

1.20.“Year of Credited Service”

means twelve (12) full months of employment with the Employer measured from a Participant’s initial coverage date (as that term is described in Article VI). Unless otherwise determined by the Administrator to be a greater amount, service for this purpose is limited to regular, full-time salaried employment by the Employer, including periods of authorized leave of absence. Effective January 1, 2006, any period following a Participant’s termination of employment date with the Employer during which the Participant is entitled to wage continuation payments, severance pay, or separation pay shall be deemed for this purpose to be an authorized leave of absence and employment after a Participant’s initial coverage date of fewer than twelve (12) full months shall be counted as a pro rata Year of Credited Service.

1.21.“Year of Vesting Service”

means twelve (12) full months of employment with the Employer measured from an employee’s most recent employment date with the Employer. Unless otherwise determined by the Administrator to be a greater amount, service for this purpose is limited to regular, full-time salaried employment by the Employer, including periods of authorized leave of absence. Effective January 1, 2006, any period following a Participant’s termination of employment date with the Employer during which the Participant is entitled to wage continuation payments, severance pay, or separation pay shall be deemed for this purpose to be an authorized leave of absence.

Article III
PLAN ADMINISTRATION

1.1.Administrator

. The Committee shall appoint the Administrator, who shall administer the Plan for the exclusive benefit of Participants and their Beneficiaries, subject to the terms of the Plan. The Administrator shall administer the Plan in accordance with its terms and shall have the power and discretion to construe the terms of the Plan and to determine all questions arising in connection with the administration, interpretation, and application of the Plan. The Administrator may establish procedures, correct any defect, or reconcile any inconsistency in such manner and to such extent as is deemed necessary or advisable to carry out the purposes of the Plan. Prior to a Change in Control, all actions by the Administrator shall be binding on all persons unless they are arbitrary or capricious. The standard of review of Administrator actions following a Change in Control shall be the less deferential de novo standard of review.

1.2.Administrator Duties

. The Administrator is responsible for the general administration of the Plan, including, but not limited to the following:

(a)The discretion to determine matters of eligibility of employees to participate or remain a Participant and to receive Plan benefits;

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(b)To determine the amount of benefits payable on behalf of a Participant;

(c)To maintain Plan records;

(d)To interpret the Plan and adopt rules for Plan administration; and

(e)To assist Participants and Beneficiaries regarding their rights and benefits under the Plan.

1.3.Information

. The Employer shall provide to the Administrator all information necessary to the administration of the Plan. The Administrator may rely on such information as is supplied by the Employer and shall have no duty to verify such information.

1.4.Claims Procedure

. A claim for benefits shall be deemed filed when the Administrator receives written notice from either the person claiming a benefit (hereafter referred to as “claimant”), or an Employer, that a Participant has either retired, died, or terminated the Participant’s employment for any other reason. Upon receipt of this written notice, the Administrator shall determine the benefits, if any, payable to the claimant. The Administrator shall communicate in writing to the claimant the benefits, if any, so determined within ninety (90) days after the date the Administrator receives the written notice described above that a claim has been filed. If special circumstances require, the 90-day period set forth in the preceding sentence may be extended up to a period of ninety (90) additional days, provided the Administrator furnishes the claimant a written notice, prior to the expiration of the initial 90-day period, of the extension, specifying the special circumstances requiring the extension and the date by which the Administrator expects to determine the benefits payable, if any.

If any claim for benefits is subject to a dispute or is partially or wholly denied, the Administrator shall provide the claimant a written notice setting forth in a manner calculated to be understood by the claimant the specific reason(s) for the benefit determination made by the Administrator; specific reference(s) to pertinent Plan provisions on which the benefit determination is based; a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; necessary information as to the requirements for submitting the disputed claim for a review; and a statement of the claimant’s right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination.

A claimant who, upon receipt of the written notice described in the preceding paragraph, desires a review of the benefit determination made by the Administrator must file not later than sixty (60) days (subject to circumstantial extensions) after such receipt a written request for a review of the benefit determination. Such written request must be filed with the Committee. The requested review shall be conducted by the Committee in such a manner so as to provide the claimant a full and fair review of the claimant’s claim and the initial determination. Upon receipt by the Committee of a written request for such a review, the Committee shall advise the claimant in writing that the claimant or the claimant’s duly authorized representative, may review documents pertinent to the disputed claim and the claimant may submit written issues and comments to the Committee for consideration during the review.

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The Committee shall review the disputed claim and render a decision not later than sixty (60) days following the receipt by the Committee of the written request for a review, unless special circumstances require an extension of the time for processing, in which case the decision shall be rendered not later than one hundred twenty (120) days following such receipt. A written notice of any such extension shall be furnished to the claimant prior to the commencement of the extension.

The Committee shall render its decision on review in writing to the claimant within the applicable time period set forth above (but not later than five (5) days after the determination is made) and shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, as well as references to the pertinent Plan provisions on which the decision is based. Should the Committee fail to render its decision within the applicable time period the claim shall be deemed to have been denied.

“Written notice” includes electronic notification meeting the requirements of ERISA regulation 2520.104b-1(c)(1)(i), (iii), and (iv).

1.5.Indemnification

. The Company shall indemnify, hold harmless and defend the Administrator from any liability which the Administrator may incur in connection with the performance of his or her duties in connection with this Plan, so long as the Administrator has not acted in an arbitrary and capricious manner prior to a Change in Control (or was acting in good faith after a Change in Control) and within what the Administrator understood to be the scope of his or her duties.

Article IVELIGIBILITY FOR PARTICIPATION AND
ENTITLEMENT TO ACCRUED BENEFIT

1.1.Designation of Participants

. The Committee is authorized to designate as Participants those key management employees the Committee has determined should be awarded coverage by this Plan. In addition, the Committee is authorized to increase the applicable percentage set forth in the Participant’s Table, described in Article VI, for a Participant who is promoted.

1.2.Entitlement to Accrued Benefits

. Subject to Section 4.3, and the small payment rules in Section 7.4, a Participant shall be entitled to the Participant’s vested Accrued Benefit upon the first to occur of:

(a)Normal retirement; defined as Separation from Service and attainment of age sixty-five (65); or

(b)Early retirement; defined as Separation from Service and attainment of age sixty-two (62), provided the Participant has completed at least five (5) Years of Vesting Service.

1.3.Forfeiture for Certain Reasons

. Notwithstanding Section 4.2 or any other Plan provision, one hundred percent (100%) of a Participant’s unpaid Accrued Benefit shall be forfeited and not eligible for payment if the Committee determines as of the Participant’s termination of employment, or subsequently, that either of the following has occurred:

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(a)The Participant, in a willful and continuous manner, failed to discharge the Participant’s duties and responsibilities as an employee after having been given notice and an opportunity to cure; the Participant committed a material act of dishonesty involving the Employer; or the Participant was convicted of a felony; or

(b)The Participant materially violated any confidentiality agreement or other covenant restricting actions detrimental to the Employer as set forth in written agreements entered into by the Employer and the Participant.

Article VVESTING

1.1.Vesting

. A Participant’s entitlement to his or her Accrued Benefit hereunder vests and becomes nonforfeitable (except as provided in Section 4.3) at the rate of twenty percent (20%) per Year of Vesting Service. The Committee may apply a shorter vesting schedule in the case of any Participant, should it choose to do so.

1.2.Forfeiture If Not Vested

. If Separation from Service occurs before the Participant is vested in any Accrued Benefits, no benefits are payable hereunder.

Article VIAMOUNT OF ACCRUED BENEFIT

1.1.Amount of Accrued Benefit

. Subject to other Plan provisions limiting or reducing benefits, the amount of a Participant’s Accrued Benefit shall be equal to:

(a)with respect to a Participant whose initial coverage date was prior to January 1, 2011, the Participant’s Final Average Salary multiplied by the applicable percentage, as determined by the Committee and set out in the Participants’ Table I, attached hereto and incorporated herein by this reference, multiplied by a fraction determined as follows:

(i)If a Participant’s initial coverage date (determined by the Committee and set out in the Participants’ Table) occurs on or before the Participant’s forty-fifth (45th) birthday, the numerator of the fraction shall be the Participant’s total number of Years of Credited Service as of the Participant’s termination of employment or twenty (20) Years of Credited Service (whichever is less) and the denominator shall be twenty (20) Years of Credited Service.

(ii)If a Participant’s initial coverage date (as described in (i)) occurs after the Participant’s forty-fifth (45th) birthday, the numerator of the fraction shall be the maximum number of Years of Credited Service that could be completed between the Participant’s initial Plan coverage date and the Participant’s sixty-fifth (65th) birthday or, if less, the Participant’s total number of Years of Credited Service as of the

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Participant’s termination of employment, and the denominator shall be the maximum number of Years of Credited Service that could be completed between the Participant’s initial Plan coverage date and the Participant’s sixty-fifth (65th) birthday.

(b)with respect to a Participant whose initial coverage date (determined by the Committee and set out in the Participants’ Table II) is on or after January 1, 2011, the Participant’s Final Average Salary multiplied by two percent (2%) (or such different percentage, as determined by the Committee and set out in the Participants’ Table II, attached hereto and incorporated herein by this reference), multiplied by the Participant’s total number of Years of Credited Service as of the Participant’s termination of employment; provided that in no event shall the amount of the Participant’s Accrued Benefit determined under this subsection (b) exceed forty percent (40%) of the Participant’s Final Average Salary.

Article VIIFORM AND COMMENCEMENT OF
PAYMENTS TO A PARTICIPANT

1.1.Form

. A Participant’s Accrued Benefit shall be paid in the form of a single annual payment for fifteen (15) consecutive calendar years except as otherwise provided in the small payment rules in Section 7.4.

1.2.Commencement

. Payments shall ordinarily commence on an Employer payroll date in January of the calendar year next following the calendar year in which occurs the earlier of the Participant’s normal or early retirement dates. However, any benefit payments that would otherwise be payable within six (6) months after the Participant’s Separation from Service shall be accumulated and paid on the first day of the seventh month following the date of the Participant’s Separation from Service (or if earlier, the date of death of the Participant).

1.3.Reduction for Early Commencement

. Any benefit payments commencing before the Participant has attained age sixty-five (65) shall be reduced to reflect the number of years by which the benefit payment commencement date precedes the date on which normal retirement benefits would have commenced, with the reduction being two percent (2%) per year. There is no actuarial increase for commencement of payments after the January following attainment of age sixty-five (65).

1.4.Small Payment Rules

. The following small payment rules are effective on and after January 1, 2006:

(a)Small Present Value at Payment Due Date. If on any date on which a payment to a Participant is otherwise due under this Article VII, the Present Value of all remaining payments due to the Participant is one hundred thousand dollars ($100,000) or less, such Present Value amount shall be paid in a lump sum on the payment date to the Participant in full and complete termination of the entirety of the Participant’s interest

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in the Plan. Payment shall be made on the first day of the month following the six (6) month anniversary of the Participant’s Separation from Service. Such dollar amount shall be adjusted not less frequently than once every five (5) years by the Administrator for cost-of-living increases based on changes in the Consumer Price Index for all Urban Consumers (CPI-U) beginning in 2010. Notwithstanding the foregoing, the amount paid under this subsection shall not exceed the maximum permitted payment amount described in Treas. Reg. 1.409A-2(b)(2)(iii).

(b)De Minimis Cash Out Rule at Termination of Employment. If, as of a Participant’s Separation from Service, the Present Value of the Participant’s vested Accrued Benefit is no greater than the applicable dollar amount under Code Section 402(g)(1)(B), such amount shall be paid to the Participant in a single lump sum amount in full and complete settlement of the Participant’s interest in the Plan. Payment shall be made on the first day of the month following the six (6) month anniversary of the Participant’s Separation from Service.

1.5.Death While In Pay Status

. If a Participant who is receiving installment payments of his or her Accrued Benefits dies before payment in full is completed, any remaining installment payments shall be made to the Participant’s Beneficiary, including when applicable, in accordance with the small payment rule of Section 7.4(a).

1.6.Withholding of Taxes and Amounts Due

. The Employer shall have the right to require the Participant to remit to the Employer an amount sufficient to satisfy Federal, state, and local withholding tax requirements, or to deduct from all payments made pursuant to the Plan (or from a Participant’s other compensation) amounts sufficient to satisfy withholding tax requirements. Employment taxes with respect to amounts deferred hereunder shall be payable in accordance with Code Section 3121(v)(2) and may be withheld from a Participant’s compensation if due prior to the time of a distribution under the Plan. In addition, the Employer may deduct from any payment hereunder all amounts owed to the Employer by the Participant for any reason.

1.7.No Representation as to Tax Consequences

. The Employer makes no representations, warranties, or assurances and assumes no responsibility as to the tax consequences of this Plan.

Article VIII
DEATH BENEFITS BEFORE PAYMENTS COMMENCE

1.1.Amount

. If a Participant who has a vested interest in his or her Accrued Benefit dies before payment of the Participant’s vested Accrued Benefit has commenced, the Beneficiary of the Participant shall be entitled to receive a death benefit hereunder. The death benefit is equal to the deceased Participant’s vested Accrued Benefit at the time of death.

1.2.Form

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. The death benefit shall be paid in the form of a single annual payment for fifteen (15) consecutive calendar years, subject to Section 8.3(b) and the small payment rules of Section 7.4.

1.3.Commencement.

(a)Upon the death of a Participant eligible for early or normal retirement, death benefit payments shall commence on a payroll date in January of the calendar year next following the calendar year in which the Participant's death occurs. Any payments commencing before the Participant would have reached age sixty-five (65) shall be reduced to reflect the number of years by which the benefit payment commencement date precedes the date on which normal retirement benefits would have commenced to the Participant, with the reduction being at the rate of two percent (2%) per year.

(b)Upon the death of a Participant who is not eligible for early or normal retirement at the time of death, the Administrator shall discount to their Present Value the installment payments that would otherwise be payable to the Participant, had the Participant survived to age sixty-five (65), and make payment in full in a single lump sum payment to the Beneficiary.

Article IXEFFECT OF CHANGE IN CONTROL

1.1.Vesting Accelerated for Active Participants

. If a Change in Control is determined by the Board to have occurred while a Participant is actively employed by the Employer, the Participant shall be immediately and fully vested in the Participant’s Accrued Benefit determined as of the date of the Change in Control.

1.2.Plan May Be Terminated and Paid Out

. If a Change in Control is determined by the Board to have occurred then, in the sole discretion of the Board, and subject to Code Section 409A, including specifically the plan termination rules in Treas. Reg. 1.409A-3(j)(4)(ix), the Plan may be terminated and the entire Present Value of Accrued Benefits of each Participant be distributed in a lump sum as soon as reasonably possible.

1.3.Rabbi Trust To Be Established and Funded

. If a Change in Control is determined by the Board to have occurred, and the Plan is not terminated as described in Section 9.2, the Company shall, no later than thirty (30) days after the Change in Control, pay into an irrevocable grantor trust (sometimes also referred to as a “rabbi trust”), created by the Company for this purpose, an amount so that the trust’s assets are equal to the Present Value of the Accrued Benefits of all Participants determined on the date of the Change in Control, and periodically thereafter pay into the trust any additional amount necessary so that the trust’s assets continue to equal the Present Value of all Accrued Benefits determined at least annually thereafter. All assets held by such trust shall be subject to the claims of the Company’s creditors in the event of the Company’s insolvency. Insolvency for this purpose means that the Company is unable to pay its debts as they become due or the Company is subject to a pending proceeding as a debtor under the United States Bankruptcy Code.

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Article XAMENDMENT OR TERMINATION

1.1.Amendment or Termination by Board

. There is no time limit on the duration of the Plan. However, the Company, by action of the Board or its Compensation Committee, may at any time to comply with Code Section 409A or for any reason, amend or terminate the Plan; provided, however, that the provisions of Section 9.3 shall not be amended or in any way curtailed following a Change in Control until all Accrued Benefits as of the date of the Change in Control have been paid.

1.2.No Reduction or Delay of Benefit Payments

. Except to the extent required for the Plan to comply with Code Section 409A or other applicable law, however, no amendment shall be effective so as to reduce the amount of benefit payable to any Participant or to delay the payment of any amount to a Participant beyond the time that such amount would be payable without regard to such amendment.

1.3.Cash Out on Plan Termination

. If the Plan is terminated, to the extent permissible under Code Section 409A, the Present Value of all Accrued Benefits shall be distributed to Participants in lump sum payments as of the effective date of the Plan termination (or at such other time as permitted by Code Section 409A).

Article XI
MISCELLANEOUS

1.1.Unfunded Plan; Unsecured Liability

. This Plan is unfunded and is maintained by the Company primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees. The Company may authorize creation of a trust or other arrangements to assist the Company in meeting its obligations under the Plan. However, any liability to any person with respect to the Plan shall be based solely upon contractual obligations created pursuant to the Plan. Nothing contained in this Plan and no action taken pursuant to its terms shall create or be construed to create a trust of any kind, or a fiduciary relationship between any Employer and the Participant, or any other person. The right of the Participant to receive benefits hereunder shall be an unsecured claim against the general assets of the Participant’s Employer and neither the Participant nor any other person shall have any rights in or against any amounts which may be earmarked by the Employer in order to implement this Plan or any other specific assets of the Employer.

1.2.No Contract of Employment

. The Plan is an expression of the Company’s current policy with respect to Company executives who meet the eligibility requirements set forth in the Plan. The Plan is not a contract of employment, nor does it provide any Participant with a right to continue in the employment of the Employer. No Participant, Beneficiary or other person shall have any legal or other right to any benefit payments except in accordance with the terms of the Plan, and then only while the Plan is in effect and subject to the Company’s right to amend or terminate the Plan.

1.3.Nonalienation of Benefits; Offset

.

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(a)The right of a Participant or any other person to the payment of benefits under this Plan shall not be assigned, transferred, pledged or encumbered except as otherwise provided by law, and no rights or benefits hereunder shall be subject to attachment or legal process for or against a Participant or his or her Beneficiary.

(b)If, at the time a payment is due hereunder, the Company determines that the Participant is indebted or obligated to the Company or any subsidiary or other affiliate thereof (including, but not limited to, for amounts owed as a result of the Participant’s breach of his or her fiduciary duty owed to, or breach of any restrictive covenant in effect with, the Company, a subsidiary or affiliate), then the payment to be made to or with respect to such Participant (including a payment to the Beneficiary thereof) may, at the discretion of the Company, be reduced by the amount of such indebtedness or obligation; provided, however, that an election by the Company to not reduce any such payment shall not constitute a waiver of its claim for such indebtedness or obligation.

1.4.Effect on Retirement Plans

. Any benefits accrued pursuant to this Plan shall not be deemed compensation to the Participant for the purpose of computing benefits under any qualified retirement plan or other benefit plan, whether qualified or nonqualified, which may be maintained by the Employer.

1.5.Severability

. If any of the provisions of the Plan shall be held to be invalid, or shall be determined to be inconsistent with the purpose of the Plan, the remainder of the Plan shall not be affected thereby.

1.6.Merger, Consolidation or Acquisition

. This Plan shall be binding upon and inure to the benefit of the Company and its successors and assigns and the Participants and their heirs, executors, administrators, and legal representatives.

1.7.Governing Law

. This Plan shall be construed in accordance with and governed by the laws of the State of Delaware to the extent not preempted by federal law.

1.8.Binding Effect

. This document and any amendments hereto contain all the terms and provisions of the Plan and shall constitute the entire Plan, any other alleged terms or provisions being of no effect. Obligations incurred by the Employer pursuant to this Plan shall be binding upon and inure to the benefit of the Participant, his or her Beneficiaries, personal representatives, heirs and legatees.

Dated this 1st day of May, 2013.

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HANGER, INC.

By: /s/ Andrew Morton    

Its:    Vice President – Human Resources    

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PARTICIPANTS’ TABLE I

NAME	INITIAL COVERAGE DATE	DATE OF 65th BIRTHDAY	APPLICABLE PERCENTAGE	STATUS
Ivan R. Sabel	January 1, 2004	March 2, 2010	90%	Active
Thomas F. Kirk	January 1, 2004	September 27, 2010	85%	Active
Richmond L. Taylor	January 1, 2004	June 30, 2013	80%	Active
George E. McHenry	January 1, 2004	July 12, 2017	75%	Active
Ronald N. May	January 1, 2004	October 6, 2011	65%	Active
Edward L. Mitzel	January 1, 2004	January 29, 2024	65%	Terminated – 4/22/05
Brian Wheeler	January 1, 2004	November 8, 2025	65%	Terminated – 8/5/10
Mike Murphy	January 1, 2004	September 19, 2025	65%	Terminated – 9/30/05
John Rush	April 1, 2005	March 15, 2026	65%	Terminated – 4/1/09
Alfred Kritter	April 1, 2005	October 9, 2017	25%	Active
Vinit Asar	December 29, 2008	February 28, 2031	65%	Active

PARTICIPANTS’ TABLE II

NAME	INITIAL COVERAGE DATE	APPLICABLE PERCENTAGE	STATUS
Thomas Hartman	January 1, 2011	2.50%	Active

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EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes‑Oxley Act and Rule 13a‑ 14(a)

or 15d‑14(a) under the Securities Exchange Act of 1934

I, Vinit K. Asar, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of Hanger, Inc.;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a‑15(f) and 15d‑15(f)) for the registrant and have:

a)    designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)    designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)    evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)    disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)    all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: May 4, 2022	By:	/s/ VINIT K. ASAR
		Vinit K. Asar
		Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes‑Oxley Act and Rule 13a‑ 14(a)

or 15d‑14(a) under the Securities Exchange Act of 1934

I, Thomas E. Kiraly, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of Hanger, Inc.;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a‑15(f) and 15d‑15(f)) for the registrant and have:

a)    designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)    designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)    evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)    disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)    all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: May 4, 2022	By:	/s/ THOMAS E. KIRALY
		Thomas E. Kiraly
		Executive Vice President and Chief Financial Officer (Principal Financial Officer)

EX-32

Exhibit 32

Written Statement of the Chief Executive Officer and Chief Financial Officer

Pursuant to 18 U.S.C. Section 1350, as Adopted

Pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002

Solely for the purposes of complying with 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Executive Officer and Chief Financial Officer of Hanger, Inc. (the “Company”), hereby certify, based on our knowledge, that the Quarterly Report on Form 10-Q of the Company for the period ended March 31, 2022 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ VINIT K. ASAR

Vinit K. Asar

Chief Executive Officer

(Principal Executive Officer)

/s/ THOMAS E. KIRALY

Thomas E. Kiraly

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

Dated: May 4, 2022

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Cover - shares	3 Months Ended
	Mar. 31, 2022	Apr. 27, 2022
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Mar. 31, 2022
Document Transition Report	false
Entity File Number	1-10670
Entity Registrant Name	HANGER, INC.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	84-0904275
Entity Address, Address Line One	10910 Domain Drive
Entity Address, Address Line Two	Suite 300
Entity Address, City or Town	Austin
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	78758
City Area Code	512
Local Phone Number	777-3800
Title of 12(b) Security	Common Stock, par value $0.01 per share
Trading Symbol	HNGR
Security Exchange Name	NYSE
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		39,029,037
Entity Central Index Key	0000722723
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	Q1
Amendment Flag	false

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CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Current assets:
Cash and cash equivalents	$ 37,423	$ 61,692
Accounts receivable, net	139,617	152,058
Inventories	83,288	87,462
Income taxes receivable	548	581
Other current assets	18,527	16,536
Total current assets	279,403	318,329
Non-current assets:
Property, plant, and equipment, net	80,906	82,434
Goodwill	367,914	363,554
Other intangible assets, net	25,032	25,892
Deferred income taxes	45,743	45,494
Operating lease right-of-use assets	141,820	144,491
Other assets	18,844	17,945
Total assets	959,662	998,139
Current liabilities:
Current portion of long-term debt	13,535	14,938
Accounts payable	57,969	63,565
Accrued expenses and other current liabilities	58,391	60,399
Accrued compensation related costs	37,232	54,465
Current portion of operating lease liabilities	33,182	33,438
Total current liabilities	200,309	226,805
Long-term liabilities:
Long-term debt, less current portion	500,555	502,307
Operating lease liabilities	121,725	124,016
Other liabilities	28,520	34,840
Total liabilities	851,109	887,968
Commitments and contingencies (Note P)
Shareholders’ equity:
Common stock, $0.01 par value; 60,000,000 shares authorized; 39,204,040 shares issued and 39,061,219 shares outstanding at 2022, and 38,891,438 shares issued and 38,748,617 shares outstanding at 2021	392	389
Additional paid-in capital	373,092	373,644
Accumulated other comprehensive loss	(4,242)	(11,150)
Accumulated deficit	(259,993)	(252,016)
Treasury stock, at cost; 142,821 shares at both 2022 and 2021	(696)	(696)
Total shareholders’ equity	108,553	110,171
Total liabilities and shareholders’ equity	$ 959,662	$ 998,139

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Mar. 31, 2022	Dec. 31, 2021
Statement of Financial Position [Abstract]
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock authorized (in shares)	60,000,000	60,000,000
Common stock issued (in shares)	39,204,040	38,891,438
Common stock outstanding (in shares)	39,061,219	38,748,617
Treasury stock (in shares)	142,821	142,821

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Income Statement [Abstract]
Net revenues	$ 261,287	$ 237,470
Material costs	85,592	75,170
Personnel costs	101,675	89,880
Other operating costs	36,168	31,498
General and administrative expenses	32,442	30,903
Depreciation and amortization	7,955	7,998
(Loss) income from operations	(2,545)	2,021
Interest expense, net	7,385	7,340
Non-service defined benefit plan expense	160	167
Loss before income taxes	(10,090)	(5,486)
Benefit for income taxes	(2,113)	(2,156)
Net loss	$ (7,977)	$ (3,330)
Basic and diluted per common share data:
Basic loss per share (in dollars per share)	$ (0.21)	$ (0.09)
Diluted loss per share (in dollars per share)	$ (0.21)	$ (0.09)
Weighted average shares used to compute basic loss per share (in shares)	38,802,420	38,268,332
Weighted average shares used to compute diluted loss per share (in shares)	38,802,420	38,268,332

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Statement of Comprehensive Income [Abstract]
Net loss	$ (7,977)	$ (3,330)
Other comprehensive income:
Unrealized gain on cash flow hedges, net of tax provision of $2,058 and $796, respectively	6,896	2,512
Unrealized gain on defined benefit plan, net of tax provision of $48 and $19, respectively	12	60
Total other comprehensive income	6,908	2,572
Comprehensive loss	$ (1,069)	$ (758)

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Parenthetical) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Statement of Comprehensive Income [Abstract]
Unrealized gain (loss) on cash flow hedges tax	$ 2,058	$ 796
Unrealized gain on defined benefit plan tax	$ 48	$ 19

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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - USD ($) $ in Thousands	Total	Common Stock	Additional Paid-in Capital	Accumulated Other Comprehensive Loss	Accumulated Deficit	Treasury Stock
Beginning balance at Dec. 31, 2020	$ 50,977	$ 383	$ 365,503	$ (20,215)	$ (293,998)	$ (696)
Beginning balance (in shares) at Dec. 31, 2020		38,179,000
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss	(3,330)				(3,330)
Share-based compensation expense	3,179		3,179
Issuance in connection with the exercise of stock options	366		366
Issuance in connection with the exercise of stock options (in shares)		29,000
Issuance of common stock upon vesting of restricted stock units	0	$ 4	(4)
Issuance of common stock upon vesting of restricted stock units (in shares)		365,000
Effect of shares withheld to cover taxes	(4,520)		(4,520)
Total other comprehensive income	2,572			2,572
Ending balance at Mar. 31, 2021	49,244	$ 387	364,524	(17,643)	(297,328)	(696)
Ending balance (in shares) at Mar. 31, 2021		38,573,000
Beginning balance at Dec. 31, 2021	$ 110,171	$ 389	373,644	(11,150)	(252,016)	(696)
Beginning balance (in shares) at Dec. 31, 2021	38,748,617	38,749,000
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss	$ (7,977)				(7,977)
Share-based compensation expense	2,903		2,903
Issuance of common stock upon vesting of restricted stock units	0	$ 3	(3)
Issuance of common stock upon vesting of restricted stock units (in shares)		324,000
Effect of shares withheld to cover taxes	(3,452)		(3,452)
Total other comprehensive income	6,908			6,908
Ending balance at Mar. 31, 2022	$ 108,553	$ 392	$ 373,092	$ (4,242)	$ (259,993)	$ (696)
Ending balance (in shares) at Mar. 31, 2022	39,061,219	39,073,000

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Cash flows (used in) provided by operating activities:
Net loss	$ (7,977)	$ (3,330)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	7,955	7,998
Benefit from doubtful accounts	(170)	(211)
Share-based compensation expense	2,903	3,179
Deferred income taxes	(2,466)	(1,795)
Amortization of debt discounts and issuance costs	518	472
Gain on sale and disposal of fixed assets	(228)	(524)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net	12,845	11,093
Inventories	4,259	(1,437)
Other current assets and other assets	(2,540)	(3,492)
Income taxes	33	25
Accounts payable	(6,038)	(14,055)
Accrued expenses and other current liabilities	1,328	(1,299)
Accrued compensation related costs	(17,245)	(36,936)
Other liabilities	(1,598)	(1,576)
Operating lease liabilities, net of amortization of right-of-use assets	123	(478)
Changes in operating assets and liabilities:	(8,833)	(48,155)
Net cash used in operating activities	(8,298)	(42,366)
Cash flows used in investing activities:
Purchase of property, plant, and equipment	(4,003)	(6,541)
Acquisitions, net of cash acquired	(4,001)	(19,377)
Purchase of therapeutic program equipment leased to third parties under operating leases	(450)	(395)
Proceeds from sale of property, plant, and equipment	551	796
Net cash used in investing activities	(7,903)	(25,517)
Cash flows used in financing activities:
Payment of employee taxes on share-based compensation	(3,452)	(4,520)
Payment on Seller Notes	(3,087)	(446)
Repayment of term loan	(1,263)	(1,263)
Payments of financing lease obligations	(266)	(265)
Payments under vendor financing arrangements	0	(275)
Proceeds from the exercise of options	0	366
Net cash used in financing activities	(8,068)	(6,403)
Decrease in cash and cash equivalents	(24,269)	(74,286)
Cash and cash equivalents at beginning of period	61,692	144,602
Cash and cash equivalents at end of period	37,423	70,316
Non-cash financing and investing activities:
Purchase of property, plant, and equipment in accounts payable at period end	3,393	3,458
Seller Notes and other non-cash consideration related to acquisitions	978	4,865
Right-of-use assets obtained in exchange for finance lease obligations	$ 0	$ 82

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Organization and Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2022

Organization and Summary of Significant Accounting Policies

Organization and Summary of Significant Accounting Policies

Organization and Summary of Significant Accounting Policies

Description of Business

Hanger, Inc. (“we,” “our,” or “us”) is a leading national provider of products and services that assist in enhancing or restoring the physical capabilities of patients with disabilities or injuries. We provide orthotic and prosthetic (“O&P”) services, distribute O&P devices and components, manage O&P networks, and provide therapeutic solutions to patients and businesses in acute, post-acute, and clinic settings. We operate through two segments, Patient Care and Products & Services.

Basis of Presentation

The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X, and, therefore, do not include all of the information and footnotes required by GAAP for complete financial statements.  These financial statements should be read in conjunction with the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”), as previously filed with the Securities and Exchange Commission (the “SEC”).

In our opinion, the information contained herein reflects all adjustments necessary for a fair statement of our results of operations, financial position, and cash flows. All such adjustments are of a normal, recurring nature.  The results of operations for the interim periods are not necessarily indicative of those to be expected for the full year.

A detailed description of our significant accounting policies and management judgments is contained in our 2021 Form 10-K.

Reclassifications

We have reclassified certain amounts in the prior year condensed consolidated financial statements to be consistent with the current year presentation. These relate to immaterial classifications within expense line items in the condensed consolidated statements of operations.

Recent Developments Regarding COVID-19

We are subject to risks and uncertainties as a result of the outbreak of the novel coronavirus (“COVID-19”) pandemic (“COVID-19 pandemic”). The extent and duration of the impact of the COVID-19 pandemic on our operations and financial condition remain uncertain and difficult to predict. As a result of the COVID-19 pandemic, we believe that our patients are continuing to defer visits to our O&P clinics, as well as elective surgical procedures, both of which impact our business volumes through decreased patient encounters and physician referrals. Nevertheless, the overall adverse impact of the COVID-19 pandemic on our business volumes has diminished and stabilized over time, and our patient appointment and other business volumes continue to gradually improve as the prevalence of the virus decreases and COVID-19 vaccines become more widely available and accepted. It remains possible that further outbreaks of COVID-19, including the spread of variants such as the Delta and Omicron variants, or reinstitution of restrictive measures by federal, state, and local governments could cause a recessionary environment impacting the healthcare industry generally, including the O&P industry. The United States government has responded with fiscal policy measures intended to support the healthcare industry and economy as a whole, including the passage of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) in March 2020.

CARES Act

The CARES Act established the Public Health and Social Services Emergency Fund, also referred to as the Cares Act Provider Relief Fund, which set aside $203.5 billion to be administered through grants and other mechanisms to hospitals, public entities, not-for-profit entities and Medicare- and Medicaid- enrolled suppliers and institutional providers. The purpose of these funds is to reimburse providers for lost revenue and health-care related expenses that are attributable to the COVID-19 pandemic. In April 2020, the U.S. Department of Health and Human Services (“HHS”) began making payments to healthcare providers from the $203.5 billion appropriation. These are grants, rather than loans, to healthcare providers, and will not need to be repaid.

During the full year of 2021, we recognized a total benefit of $1.1 million in our consolidated statement of operations within Other operating costs in our Patient Care segment for the grant proceeds we received under the CARES Act (“Grants”) from HHS. We accounted for the proceeds from the Grants by analogy to International Accounting Standard (“IAS 20”), Accounting for Government Grants and Disclosure of Government Assistance and its principles surrounding the recognition of grants related to income. We recognize income related to grants on a systematic and rational basis when it becomes probable that we have complied with the terms and conditions of the grant and in the period in which the corresponding costs or income related to the grant are recognized. We are using the Grants for their intended purpose, and are compliant to the reporting requirements set by the terms and conditions of the grant.

The CARES Act also provided for a deferral of the employer portion of payroll taxes incurred during the COVID-19 pandemic through December 2020. The provisions allowed us to defer half of such payroll taxes until December 2021 and the remaining half until December 2022. We paid the first half in September 2021, and deferred $5.9 million of payroll taxes within Accrued compensation related costs in the condensed consolidated balance sheet as of March 31, 2022.

Recent Accounting Pronouncements, Not Yet Adopted

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU, effective beginning on March 12, 2020, provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. We are currently evaluating the effects that the adoption of this guidance, and related clarifying standards, will have on our condensed consolidated financial statements and the related disclosures.

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Earnings Per Share

3 Months Ended

Mar. 31, 2022

Earnings Per Share [Abstract]

Earnings Per Share

Earnings Per Share

Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares outstanding during the period plus any potentially dilutive common shares, such as stock options, restricted stock units, and performance-based units calculated using the treasury stock method. Total anti-dilutive shares excluded from the diluted loss per share computation were 32,891 and 3,471 for the three months ended March 31, 2022 and 2021, respectively.

Our Credit Agreement (as defined below) restricts the payment of dividends or other distributions to our shareholders by us or any of our subsidiaries. See Note K - “Debt and Other Obligations” within these condensed consolidated financial statements.

The reconciliation of the numerators and denominators used to calculate basic and diluted net income per share are as follows:

	For the Three Months Ended March 31,
(in thousands except share and per share amounts)	2022		2021
Net loss	$	(7,977)	$	(3,330)
Weighted average shares outstanding - basic	38,802,420		38,268,332
Effect of potentially dilutive restricted stock units and options (1)	—		—
Weighted average shares outstanding - diluted	38,802,420		38,268,332
Basic and diluted loss per share	$	(0.21)	$	(0.09)

(1) In accordance with ASC 260 - Earnings Per Share, during periods of a net loss, shares used to compute diluted per share amounts exclude potentially dilutive shares related to unvested restricted stock units and unexercised options. For the three months ended March 31, 2022 and 2021, potentially dilutive shares of 490,081 and 906,116 shares, respectively, were excluded, as we were in a net loss position.

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Revenue Recognition

3 Months Ended

Mar. 31, 2022

Revenue from Contract with Customer [Abstract]

Revenue Recognition

Revenue Recognition

Patient Care Segment

Revenue in our Patient Care segment is primarily derived from contracts with third party payors for the provision of O&P devices and is recognized upon the transfer of control of promised products or services to the patient at the time the patient receives the device. At, or subsequent to delivery, we issue an invoice to the third party payor, which primarily consists of commercial insurance companies, Medicare, Medicaid, the U.S. Department of Veterans Affairs (the “VA”), or private or patient pay (“Private Pay”) individuals. We recognize revenue for the amounts we expect to receive from payors based on expected contractual reimbursement rates, which are net of estimated contractual discounts and implicit price concessions. These revenue amounts are further revised as claims are adjudicated, which may result in additional disallowances.

The following table disaggregates revenue from contracts with customers in our Patient Care segment for the three months ended March 31, 2022 and 2021:

	For the Three Months Ended March 31,
(in thousands)	2022		2021
Patient Care Segment
Medicare	$	65,854	$	57,335
Medicaid	39,272		34,048
Commercial insurance / managed care (excluding Medicare and Medicaid managed care)	77,343		69,663
VA	21,049		19,764
Private Pay	16,300		14,872
Total	$	219,818	$	195,682

The impact to revenue related to prior period performance obligations was not material for the three months ended March 31, 2022 or 2021.

Products & Services Segment

Revenue in our Products & Services segment is derived from the distribution of O&P components and from therapeutic solutions which includes the leasing and sale of rehabilitation equipment and ancillary consumable supplies combined with equipment maintenance, education, and training.

The following table disaggregates revenue from contracts with customers in our Products & Services segment for the three months ended March 31, 2022 and 2021:

	For the Three Months Ended March 31,
(in thousands)	2022		2021
Products & Services Segment
Distribution services, net of intersegment revenue eliminations	$	31,390	$	30,660
Therapeutic solutions	10,079		11,128
Total	$	41,469	$	41,788

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Accounts Receivable, Net

3 Months Ended

Mar. 31, 2022

Accounts Receivable, after Allowance for Credit Loss [Abstract]

Accounts Receivable, Net

Accounts Receivable, Net

Accounts receivable, net represents outstanding amounts we expect to collect from the transfer of our products and services. Principally, these amounts are comprised of receivables from Medicare, Medicaid, and commercial insurance plans. Our accounts receivable represent amounts outstanding from our gross charges, net of contractual discounts, sales returns, and other implicit price concessions including estimates for payor disallowances and patient non-payments.

We are exposed to credit losses primarily through our accounts receivable. These receivables are short in nature because their due date varies between due upon receipt of invoice and 90 days. We assess our receivables, divide them into similar risk pools, and monitor our ongoing credit exposure through active review of our aging buckets. Our activities include timely account reconciliations, dispute resolution, and payment confirmations. We also employ collection agencies and legal counsel to pursue recovery of defaulted receivables.

Our expected loss methodology is developed using historical liquidation rates, current and future economic and market conditions, and a review of the current status of our patients and customers’ trade accounts receivable balances. We also group our receivables into similar risk pools to better measure the risks for each pool. After evaluating the risk for each pool, we have determined that additional credit loss risk is immaterial for the Patient Care segment. For the Products & Services segment, an allowance for doubtful accounts is recorded, which is deducted from gross accounts receivable to arrive at “Accounts receivable, net.” As of March 31, 2022, we have considered the current and future economic and market conditions resulting in a decrease to the allowance for doubtful accounts by approximately $0.1 million since December 31, 2021.

Accounts receivable, net as of March 31, 2022 and December 31, 2021 is comprised of the following:

	As of March 31, 2022						As of December 31, 2021
(in thousands)	Patient Care		Products & Services		Consolidated		Patient Care		Products & Services		Consolidated
Gross charges before estimates for implicit price concessions	$	157,814	$	21,089	$	178,903	$	173,115	$	21,459	$	194,574
Less estimates for implicit price concessions:
Payor disallowances	(30,300)		—		(30,300)		(33,007)		—		(33,007)
Patient non-payments	(7,059)		—		(7,059)		(7,500)		—		(7,500)
Accounts receivable, gross	120,455		21,089		141,544		132,608		21,459		154,067
Allowance for doubtful accounts	—		(1,927)		(1,927)		—		(2,009)		(2,009)
Accounts receivable, net	$	120,455	$	19,162	$	139,617	$	132,608	$	19,450	$	152,058

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Inventories

3 Months Ended

Mar. 31, 2022

Inventory Disclosure [Abstract]

Inventories

Inventories

Our inventories are comprised of the following:

	As of March 31,		As of December 31,
(in thousands)	2022		2021
Raw materials	$	22,569	$	22,759
Work in process	19,783		15,807
Finished goods	40,936		48,896
Total inventories	$	83,288	$	87,462

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Acquisitions

3 Months Ended

Mar. 31, 2022

Business Combination and Asset Acquisition [Abstract]

Acquisitions

Acquisitions

2022 Acquisition Activity

In the first quarter of 2022, we completed the acquisition of all the outstanding equity interests of an O&P business for total consideration of $5.0 million, of which $4.0 million was cash consideration, net of cash acquired, and $1.0 million was issued in the form of notes to shareholders at fair value. The acquisition was completed with the intention of expanding the geographic footprint of our patient care offerings through the acquisition of this high quality O&P provider. The acquisition was not material to our financial position, results of operations, or cash flows.

We accounted for this transaction under the acquisition method of accounting and have reported the results of operations of the acquisition as of the date of the acquisition. We based the estimated fair values of intangible assets on an income approach utilizing the excess earnings method for customer relationships. The income approach utilizes management’s estimates of future operating results and cash flows using a weighted average cost of capital that reflects market participant assumptions. Other significant judgments used in the valuation of tangible assets acquired in the acquisition include estimated selling price of inventory and estimated replacement cost for acquired property, plant, and equipment. For all other assets acquired and liabilities assumed, the fair value reflects the carrying value of the asset or liability due to their short maturity. We recorded the excess of the fair value of the consideration transferred in the acquisition over the fair value of net assets acquired as goodwill. The goodwill reflects our expectations of favorable future growth opportunities, anticipated synergies through the scale of our O&P operations, and the assembled workforce. We expect that substantially all of the goodwill, which has been assigned to our Patient Care reporting unit, will not be deductible for federal income tax purposes.

Acquisition-related costs are included in general and administrative expenses in our condensed consolidated statements of operations. Total acquisition-related costs incurred during the three months ended March 31, 2022 were $0.3 million, which includes those costs for transactions that are in progress or were not completed during the respective period. Acquisition-related costs incurred for the acquisition completed during the three months ended March 31, 2022 were $0.1 million.

We have not presented pro forma combined results for this acquisition because the impact on previously reported statements of operations would not have been material.

Purchase Price Allocation

We have performed a preliminary valuation analysis of the fair market value of the assets acquired and liabilities assumed in the acquisition. The final purchase price allocation will be determined when we have completed and fully reviewed the detailed valuations which could differ materially from the preliminary allocations. The final allocation may include changes in allocations of acquired intangible assets as well as goodwill and other changes to assets and liabilities, including deferred taxes. The estimated useful lives of acquired intangible assets are also preliminary.

The aggregate purchase price of this acquisition was allocated on a preliminary basis as follows:

(in thousands)
Cash paid, net of cash acquired	$	4,001
Issuance of Seller Notes at fair value	981
Aggregate purchase price	4,982
Accounts receivable	310
Inventories	85
Customer relationships (Weighted average useful life of 5.0 years)	500
Non-compete agreements (Weighted average useful life of 5.0 years)	243
Other assets and liabilities, net	(103)
Net assets acquired	1,035
Goodwill	$	3,947

Right-of-use assets and lease liabilities related to operating leases recognized in connection with the acquisition completed for the three months ended March 31, 2022 were $0.4 million.

During the second quarter of 2022 to date, we completed the acquisition of one O&P business for a total purchase price of $3.2 million. Total consideration transferred for this acquisition is comprised of $2.4 million in cash consideration and $0.8 million in the form of notes to shareholders at fair value. Due to the proximity in time of this transaction to the filing of this Form 10-Q, it is not practicable to provide a preliminary purchase price allocation of the fair value of the assets purchased and liabilities assumed in the acquisition. Acquisition-related expenses related to this transaction were not material.

In March 2022, we entered into a definitive share purchase agreement in connection with the acquisition of one O&P business for a total purchase price of approximately $9.0 million. Due to the proximity in time of this transaction to the filing of this Form 10-Q, it is not practicable to provide a preliminary purchase price allocation of the fair value of the assets acquired and liabilities assumed in this acquisition. Acquisition-related expenses were not material for this transaction.

2021 Acquisition Activity

During 2021, we completed the following acquisitions of O&P clinics with the intention of expanding the geographic footprint of our patient care offerings through the acquisition of these high quality O&P providers. None of the acquisitions were individually material to our financial position, results of operations, or cash flows.

•In the first quarter of 2021, we completed the acquisitions of all the outstanding equity interests of three O&P businesses and the assets of one O&P business for total consideration of $24.2 million, of which $19.2 million was cash consideration, net of cash acquired, $4.0 million was issued in the form of notes to shareholders at fair value, and $1.0 million in additional consideration.

•In the second quarter of 2021, we completed the acquisitions of all the outstanding equity interests of two O&P businesses for total consideration of $21.0 million, of which $16.0 million was cash consideration, net of cash acquired, $4.9 million was issued in the form of notes to shareholders at fair value, and $0.1 million in additional consideration.

•In the third quarter of 2021, we completed the acquisitions of all the outstanding equity interests of three O&P businesses and the assets of one O&P business for total consideration of $6.2 million, of which $3.9 million was cash consideration, net of cash acquired, $1.5 million was issued in the form of notes to shareholders at fair value, and $0.8 million in additional consideration.

•In the fourth quarter of 2021, we completed the acquisitions of all the outstanding equity interests of eight O&P businesses for total consideration of $53.1 million, of which $40.8 million was cash consideration, net of cash acquired, and $12.3 million was issued in the form of notes to shareholders at fair value.

Acquisition-related costs are included in general and administrative expenses in our condensed consolidated statements of operations. Total acquisition-related costs incurred during the year ended December 31, 2021 were $2.1 million, which includes those costs for transactions that were in progress or were not completed during the respective period. Acquisition-related costs incurred for the acquisitions completed during the year ended December 31, 2021 were $1.6 million.

The aggregate purchase price of these acquisitions was allocated on a preliminary basis as follows:

(in thousands)
Cash paid, net of cash acquired	$	79,927
Issuance of Seller Notes at fair value	22,706
Additional consideration, net	1,925
Aggregate purchase price	104,558
Accounts receivable	6,569
Inventories	4,683
Customer relationships (Weighted average useful life of 5.0 years)	11,745
Non-compete agreements (Weighted average useful life of 5.0 years)	558
Other assets and liabilities, net	(5,121)
Net assets acquired	18,434
Goodwill	$	86,124

Right-of-use assets and lease liabilities related to operating leases recognized in connection with acquisitions completed for the year ended December 31, 2021 were $8.9 million.

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Goodwill and Other Intangible Assets

3 Months Ended

Mar. 31, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

We assess goodwill and indefinite-lived intangible assets for impairment annually as of October 1st, and between annual tests if an event occurs, or circumstances change, that would more-likely-than-not reduce the fair value of a reporting unit below its carrying value.

The following table summarizes the activity in goodwill of the Patient Care operating segment for the period indicated:

	For the Three Months Ended March 31, 2022
(in thousands)	Goodwill, Gross		Accumulated Impairment		Goodwill, Net
As of December 31, 2021	$	792,222	$	(428,668)	$	363,554
Additions from acquisitions	3,947		—		3,947
Measurement period adjustments (1)	413		—		413
As of March 31, 2022	$	796,582	$	(428,668)	$	367,914

(1) Measurement period adjustments relate to 2021 acquisitions of approximately $0.4 million and are primarily attributable to adjustments to the preliminary allocations of acquired assets.

The balances related to intangible assets as of March 31, 2022 are as follows:

	As of March 31, 2022
(in thousands)	Gross Carrying Amount		Accumulated Amortization		Accumulated Impairment		Net Carrying Amount
Customer lists	$	29,124	$	(11,364)	$	—	$	17,760
Trade name	255		(208)		—		47
Patents and other intangibles	9,815		(6,707)		—		3,108
Definite-lived intangible assets	39,194		(18,279)		—		20,915
Indefinite-lived trade name	9,070		—		(4,953)		4,117
Total other intangible assets	$	48,264	$	(18,279)	$	(4,953)	$	25,032

Amortization expense related to other intangible assets was approximately $1.6 million and $1.0 million for the three months ended March 31, 2022 and 2021, respectively.

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Other Current Assets and Other Assets

3 Months Ended

Mar. 31, 2022

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Other Current Assets and Other Assets

Other Current Assets and Other Assets

Other current assets consist of the following:

	As of March 31,		As of December 31,
(in thousands)	2022		2021
Non-trade receivables	$	6,291	$	7,725
Prepaid maintenance	4,781		4,553
Prepaid insurance	2,397		510
Other prepaid assets	5,058		3,748
Total other current assets	$	18,527	$	16,536

Other assets consist of the following:

	As of March 31,		As of December 31,
(in thousands)	2022		2021
Implementation costs for cloud computing arrangements	$	6,301	$	6,459
Cash surrender value of company-owned life insurance	4,235		4,471
Finance lease right-of-use assets	2,536		2,732
Deposits	2,214		2,178
Non-trade receivables	1,583		1,172
Other	1,975		933
Total other assets	$	18,844	$	17,945

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Accrued Expenses and Other Current Liabilities and Other Liabilities

3 Months Ended

Mar. 31, 2022

Payables and Accruals [Abstract]

Accrued Expenses and Other Current Liabilities and Other Liabilities

Accrued Expenses and Other Current Liabilities and Other Liabilities

Accrued expenses and other current liabilities consist of:

	As of March 31,		As of December 31,
(in thousands)	2022		2021
Patient prepayments, deposits, and refunds payable	$	28,992	$	26,475
Insurance and self-insurance accruals	9,296		8,943
Accrued sales taxes and other taxes	7,900		7,803
Derivative liability	2,698		6,425
Accrued professional fees	710		750
Accrued interest payable	723		707
Other current liabilities	8,072		9,296
Total	$	58,391	$	60,399

Other liabilities consist of:

	As of March 31,		As of December 31,
(in thousands)	2022		2021
Supplemental executive retirement plan obligations	$	19,018	$	20,779
Long-term insurance accruals	7,264		7,112
Derivative liability	—		4,664
Other	2,238		2,285
Total	$	28,520	$	34,840

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Income Taxes

3 Months Ended

Mar. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

We recorded a benefit for income taxes of $2.1 million and $2.2 million for the three months ended March 31, 2022 and 2021, respectively. The effective tax rate was 20.9% and 39.3% for the three months ended March 31, 2022 and 2021, respectively.

The decrease in the effective tax rate for the three months ended March 31, 2022 compared with the three months ended March 31, 2021 is primarily attributable to a decrease in pre-tax book income, nondeductible permanent items, and a windfall for the three months ended March 31, 2021 compared to a shortfall for the three months ended March 31, 2022. Our effective tax rate for the three months ended March 31, 2022 is similar to the federal statutory tax rate of 21%, but the difference consists primarily of research and development credits offset by non-deductible expenses and shortfall from share-based compensation. Our effective tax rate for the three months ended March 31, 2021 differed from the federal statutory tax rate of 21% primarily due to research and development credits, non-deductible expenses, and windfall from share-based compensation.

For the year ending December 31, 2022, we estimate a research and development tax credit of $2.7 million, net of tax reserves. We record the tax benefit, net of tax reserves, as a deferred tax asset. For the year ended December 31, 2021, we recognized research and development tax credits of $4.3 million, net of tax reserves.

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Debt and Other Obligations

3 Months Ended

Mar. 31, 2022

Debt Disclosure [Abstract]

Debt and Other Obligations

Debt and Other Obligations

Debt consists of the following:

	As of March 31,		As of December 31,
(in thousands)	2022		2021
Debt:
Term Loan B	$	484,800	$	486,063
Seller Notes	27,725		29,812
Deferred payment obligation	4,000		4,000
Finance lease liabilities and other	3,097		3,344
Total debt before unamortized discount and debt issuance costs	519,622		523,219
Unamortized discount and debt issuance costs, net	(5,532)		(5,974)
Total debt	$	514,090	$	517,245
Current portion of long-term debt:
Term Loan B	$	5,050	$	5,050
Seller Notes	7,595		8,969
Finance lease liabilities and other	890		919
Total current portion of long-term debt	13,535		14,938
Long-term debt	$	500,555	$	502,307

Credit Agreement and Term B Borrowings

As of March 31, 2022, we have a Senior Credit Facility (the “Credit Agreement”) which provides for (i) a Term Loan B facility with $484.8 million outstanding which is due in quarterly principal installments with all remaining outstanding principal due at maturity in March 2025 and (ii) a revolving credit facility with an availability of $135.0 million which matures on November 23, 2026 (subject to a springing maturity if the term loans outstanding under the Credit Agreement are not repaid prior to the date that is 91 days prior to the stated maturity thereof). Availability under the revolving credit facility is reduced by outstanding letters of credit, which were $5.2 million as of March 31, 2022, resulting in approximately $129.8 million in available borrowing capacity.

Our obligations under the Credit Agreement are currently guaranteed by our material domestic subsidiaries and will from time to time be guaranteed by, subject in each case to certain exceptions, any domestic subsidiaries that may become material in the future. Subject to certain exceptions, the Credit Agreement is secured by first-priority perfected liens and security interests in substantially all of our personal property and each subsidiary guarantor.

Borrowings under the Credit Agreement bear interest at a variable rate equal to (i) LIBOR plus a specified margin, subject to a LIBOR interest rate floor of 0.00% per annum, or (ii) the base rate (which is the highest of (a) Bank of America, N.A.’s prime rate, (b) the federal funds rate plus 0.50% or (c) the sum of 1% plus one-month LIBOR) plus a specified margin. For the three months ended March 31, 2022, the weighted average interest rate on outstanding borrowings under our Term Loan B facility was approximately 3.6%. We have entered into interest rate swap agreements to hedge certain of our interest rate exposures, as more fully disclosed in Note M - “Derivative Financial Instruments.”

We must also pay (i) an unused commitment fee ranging from 0.375% to 0.500% per annum of the average daily unused portion of the aggregate revolving credit commitments under the Credit Agreement, and (ii) a per annum fee equal to (a) for each performance standby letter of credit outstanding under the Credit Agreement with respect to nonfinancial contractual obligations, 50% of the applicable margin over LIBOR under the revolving credit facility in effect from time to time multiplied by the daily amount available to be drawn under such letter of credit, and (b) for each other letter of credit outstanding under the Credit Agreement, the applicable margin over LIBOR under the revolving credit facility in effect from time to time multiplied by the daily amount available to be drawn for such letter of credit.

The Credit Agreement and its amendments contain various restrictions and covenants, including: (i) requirements that we maintain certain financial ratios at prescribed levels, (ii) a prohibition on payment of dividends and other distributions and

(iii) restrictions on our ability and certain of our subsidiaries to consolidate or merge, create liens, incur additional indebtedness, dispose of assets, or consummate acquisitions outside the healthcare industry. The Credit Agreement includes the following financial covenants applicable for so long as any revolving loans and/or revolving commitments remain outstanding under the Credit Agreement: (i) a maximum consolidated first lien net leverage ratio (“Net Leverage Ratio”) (defined as, with certain adjustments and exclusions, the ratio of consolidated first-lien indebtedness to consolidated net income before interest, taxes, depreciation, amortization, non-cash charges and certain other items (“EBITDA”) for the most recently ended period of four fiscal quarters for which financial statements are available) shall be up to (a) 5.00 to 1.00 for the fiscal quarters ending March 31, 2022, June 30, 2022, and September 30, 2022 and (b) 4.75 to 1.00 for the fiscal quarter ending December 31, 2022 and the last day of each fiscal quarter thereafter, (ii) permit, at our election and up to three times during the term of the Credit Agreement, the maximum allowable leverage ratio for covenant purposes to be temporarily increased by an additional 0.50 to 1.00 for four consecutive fiscal quarters in connection with certain material acquisitions, and (iii) a minimum interest coverage ratio (defined as, with certain adjustments, the ratio of our EBITDA to consolidated interest expense to the extent paid or payable in cash) of 2.75 to 1.00 as of the last day of any fiscal quarter.

The Credit Agreement also contains customary events of default. If an event of default under the Credit Agreement occurs and is continuing, then the lenders may declare any outstanding obligations under the Credit Agreement to be immediately due and payable; provided, however, that the occurrence of an event of default as a result of a breach of a financial covenant under the Credit Agreement does not constitute a default or event of default with respect to any term facility under the Credit Agreement unless and until the required revolving lenders shall have terminated their revolving commitments and declared all amounts outstanding under the revolving credit facility to be due and payable. In addition, if we or any subsidiary guarantor becomes the subject of voluntary or involuntary proceedings under any bankruptcy, insolvency, or similar law, then any outstanding obligations under the Credit Agreement will automatically become immediately due and payable. Loans outstanding under the Credit Agreement will bear interest at a rate of 2.00% per annum in excess of the otherwise applicable rate (i) upon acceleration of such loans, (ii) while a payment event of default exists or (iii) upon the lenders’ request, during the continuance of any other event of default.

We were in compliance with all covenants at March 31, 2022.

Seller Notes and the Deferred Payment Obligation

We typically issue subordinated promissory notes (“Seller Notes”) as a part of the consideration transferred when making acquisitions. The Seller Notes are unsecured and are presented net of unamortized discount of $0.8 million and $0.9 million as of March 31, 2022 and December 31, 2021, respectively. We measure these instruments at their estimated fair values as of the respective acquisition dates. The stated interest rates on these instruments range from 2.50% to 3.00%. Principal and interest are payable in quarterly or annual installments and mature through November 2026.

Amounts due under the deferred payment obligation to the former shareholders of an acquired O&P business are unsecured and presented net of unamortized discount of $0.4 million as of March 31, 2022 and December 31, 2021, respectively. The deferred payment obligation was measured at its estimated fair value as of the acquisition date and accrues interest at a rate of 3.0%. Principal and interest payments under the deferred payment obligation are due in annual installments beginning in 2024 and for three years thereafter.

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Fair Value Measurements

3 Months Ended

Mar. 31, 2022

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

Financial Instruments

The carrying value of our outstanding term loan as of March 31, 2022 (excluding unamortized discounts and debt issuance costs of $4.7 million) was $484.8 million compared to its fair value of $477.5 million. The carrying value of our outstanding term loan as of December 31, 2021 (excluding unamortized discounts and debt issuance costs of $5.1 million) was $486.1 million compared to its fair value of $484.8 million. Our estimates of fair value are based on a discounted cash flow model and an indicative quote using unobservable inputs, primarily, our risk-adjusted credit spread, which represents a Level 3 measurement.

We have interest rate swap agreements designated as cash flow hedges which are measured at fair value based on inputs other than quoted market prices that are observable, which represents a Level 2 measurement. See Note K - “Debt and Other Obligations” and Note M - “Derivative Financial Instruments” for further information.

We believe that the carrying value of the Seller Notes and the deferred payment obligation approximates their fair values based on a discounted cash flow model using unobservable inputs, primarily, our credit spread for subordinated debt, which represents a Level 3 measurement. The carrying value of our outstanding Seller Notes and the deferred payment obligation issued in connection with past acquisitions as of March 31, 2022 and December 31, 2021 was $30.9 million and $32.9 million, net of unamortized discounts of $0.8 million and $0.9 million, respectively.

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Derivative Financial Instruments

3 Months Ended

Mar. 31, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

Cash Flow Hedges of Interest Rate Risk

In March 2018, we entered into interest rate swap agreements with notional values of $325.0 million at inception, which reduces $12.5 million annually until the swaps mature on March 6, 2024. As of March 31, 2022 and December 31, 2021, our swaps had a notional value outstanding of $275.0 million and $287.5 million, respectively.

Change in Net Loss on Cash Flow Hedges Included in Accumulated Other Comprehensive Loss

The following table presents the activity of cash flow hedges included in accumulated other comprehensive loss for the three months ended March 31, 2022 and 2021, respectively:

(in thousands)	Cash Flow Hedges
Balance as of December 31, 2021	$	(8,504)
Unrealized gain recognized in other comprehensive income before reclassifications, net of tax	5,020
Reclassification to interest expense, net of tax	1,876
Balance as of March 31, 2022	$	(1,608)
Balance as of December 31, 2020	$	(16,771)
Unrealized gain recognized in other comprehensive loss before reclassifications, net of tax	529
Reclassification to interest expense, net of tax	1,983
Balance as of March 31, 2021	$	(14,259)

The following table presents the fair value of derivative assets and liabilities within the condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021:

	As of March 31, 2022				As of December 31, 2021
(in thousands)	Assets		Liabilities		Assets		Liabilities
Derivatives designated as cash flow hedging instruments:
Other assets	$	563	$	—	$	—	$	—
Accrued expenses and other current liabilities	—		2,698		—		6,425
Other liabilities	—		—		—		4,664

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Share-Based Compensation

3 Months Ended

Mar. 31, 2022

Share-based Payment Arrangement [Abstract]

Share-Based Compensation

Share-Based Compensation

On May 17, 2019, the shareholders approved the Hanger, Inc. 2019 Omnibus Incentive Plan (the “2019 Plan”). The 2019 Plan authorizes the issuance of (a) up to 2,025,000 shares of Common Stock, plus (b) 243,611 shares available for issuance under the Hanger, Inc. 2016 Omnibus Incentive Plan (the “2016 Plan”). Upon approval of the 2019 Plan, the 2016 Plan was no longer available for future awards.

As of March 31, 2022, there were 1,609,030 unvested restricted stock awards outstanding. This was comprised of 1,166,910 employee service-based awards with a weighted average grant date fair value of $20.65 per share, 392,764 employee performance-based awards with a weighted average grant date fair value of $20.57 per share, and 49,356 director service-based awards with a weighted average grant date value of $25.53 per share. As of March 31, 2022, there were 275,783 outstanding options exercisable with a weighted average exercise price of $12.77 and average remaining contractual term of 4.8 years.

We recognized approximately $2.9 million and $3.2 million of share-based compensation expense for the three months ended March 31, 2022 and 2021, respectively. Share-based compensation expense, net of forfeitures, relates to restricted stock units, performance-based restricted stock units, and stock options.

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Supplemental Executive Retirement Plans

3 Months Ended

Mar. 31, 2022

Retirement Benefits [Abstract]

Supplemental Executive Retirement Plans

Supplemental Executive Retirement Plans

Defined Benefit Supplemental Executive Retirement Plan

Effective January 2004, we implemented an unfunded noncontributory defined benefit plan (“DB SERP”) for certain senior executives. The DB SERP, which we administer, calls for fifteen annual payments upon retirement with the payment amount based on years of service and final average salary. Benefit costs and liability balances are calculated based on certain assumptions including benefits earned, discount rates, interest costs, mortality rates, and other factors. Actual results that differ from the assumptions are accumulated and amortized over future periods, affecting the recorded obligation and expense in future periods.

We believe the assumptions used are appropriate; however, changes in assumptions or differences in actual experience may affect our benefit obligation and future expenses. The change in net benefit cost and obligation during the three months ended March 31, 2022 and 2021 is as follows:

Change in Benefit Obligation:
(in thousands)	2022		2021
Benefit obligation as of December 31, 2021 and 2020, respectively	$	17,935	$	19,746
Service cost	116		123
Interest cost	99		87
Payments	(1,877)		(1,877)
Benefit obligation as of March 31	$	16,273	$	18,079

Amounts Recognized in the Condensed Consolidated Balance Sheets:
	As of March 31,		As of December 31,
(in thousands)	2022		2021
Current accrued expenses and other current liabilities	$	1,913	$	1,913
Non-current other liabilities	14,360		16,022
Total accrued liabilities	$	16,273	$	17,935

Defined Contribution Supplemental Executive Retirement Plan

In 2013, we established a defined contribution plan (“DC SERP”) that covers certain of our senior executives. Each participant is given a notional account to manage his or her annual distributions and allocate the funds among various investment options (e.g., mutual funds). These accounts are tracking accounts only for the purpose of calculating the participant’s benefit. The participant does not have ownership of the underlying mutual funds. When a participant initiates or changes the allocation of his or her notional account, we will generally make an allocation of our investments to match those chosen by the participant. While the allocation of our sub accounts is generally intended to mirror the participant’s account records (i.e., the distributions and gains or losses on those funds), the employee does not have legal ownership of any funds until payout upon retirement. The underlying investments are owned by the insurance company with which we own an insurance policy.

As of March 31, 2022 and December 31, 2021, the estimated accumulated benefit obligation is $4.7 million and $4.8 million, of which $4.5 million and $4.1 million is funded and $0.2 million and $0.6 million is unfunded at March 31, 2022 and December 31, 2021, respectively.

In connection with the DC SERP benefit obligation, we maintain a company-owned life insurance policy (“COLI”). The carrying value of the COLI is measured at its cash surrender value and is presented within “Other assets” in our condensed consolidated balance sheets. See Note H - “Other Current Assets and Other Assets” for additional information.

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2022

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Guarantees and Indemnification

In the ordinary course of our business, we may enter into service agreements with service providers in which we agree to indemnify or limit the service provider against certain losses and liabilities arising from the service provider’s performance of the agreement. We have reviewed our existing contracts containing indemnification or clauses of guarantees and do not believe that our liability under such agreements is material.

Other Matters

From time to time we are subject to legal proceedings and claims which arise in the ordinary course of our business, and are also subject to additional payments under business purchase agreements. In the opinion of management, the amount of ultimate liability, if any, with respect to these actions will not have a materially adverse effect on our consolidated financial position, liquidity or results of operations.

We operate in a highly regulated industry and receive regulatory agency inquiries from time to time in the ordinary course of our business, including inquiries relating to our billing activities. No assurance can be given that any discrepancies identified during a regulatory review will not have a material adverse effect on our consolidated financial statements.

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Segment and Related Information

3 Months Ended

Mar. 31, 2022

Segment Reporting [Abstract]

Segment and Related Information

Segment and Related Information

We have identified two operating segments and both performance evaluation and resource allocation decisions are determined based on each segment’s income from operations. The operating segments are described further below.

Patient Care - This segment consists of (i) our owned and operated patient care clinics, and (ii) our contracting and network management business. The patient care clinics provide services to design and fit O&P devices to patients. These clinics also instruct patients in the use, care, and maintenance of the devices. The principal reimbursement sources for our services are:

•Commercial private payors and other, which consist of individuals, rehabilitation providers, commercial insurance companies, health management organizations (“HMOs”), preferred provider organizations (“PPOs”), hospitals, vocational rehabilitation, workers’ compensation programs, and similar sources;

•Medicare, a federally funded health insurance program providing health insurance coverage for persons aged 65 or older and certain persons with disabilities, which provides reimbursement for O&P products and services based on prices set forth in published fee schedules (generally with either 10 regional pricing areas or state level prices) for prosthetics and orthotics and by state for durable medical equipment (DMEPOS);

•Medicaid, a health insurance program jointly funded by federal and state governments providing health insurance coverage for certain persons requiring financial assistance, regardless of age, which may supplement Medicare benefits for persons aged 65 or older requiring financial assistance; and

•the VA.

Our contract and network management business, known as Linkia, is the only network management company dedicated solely to serving the O&P market and is focused on managing the O&P services of national and regional insurance companies. We partner with healthcare insurance companies by securing a national or regional contract either as a preferred provider or to manage their O&P network of providers.

Products & Services - This segment consists of our distribution business, which distributes and fabricates O&P products and components to sell to both the O&P industry and our own patient care clinics, and our therapeutic solutions business. The therapeutic solutions business leases and sells rehabilitation equipment and ancillary consumable supplies combined with equipment maintenance, education, and training.

Corporate & Other - This consists of corporate overhead and includes unallocated expense such as personnel costs, professional fees, and corporate offices expenses.

The accounting policies of the segments are the same as those described in Note A - “Organization and Summary of Significant Accounting Policies” in our 2021 Form 10-K.

Intersegment revenue primarily relates to sales of O&P components from the Products & Services segment to the Patient Care segment. The sales are priced at the cost of the related materials plus overhead.

Summarized financial information concerning our reportable segments is shown in the following tables. Total assets for each of the segments has not materially changed from December 31, 2021.

	Patient Care				Products & Services
	For the Three Months Ended March 31,				For the Three Months Ended March 31,
(in thousands)	2022		2021		2022		2021
Net revenues
Third party	$	219,818	$	195,682	$	41,469	$	41,788
Intersegments	—		—		54,675		47,047
Total net revenues	219,818		195,682		96,144		88,835
Material costs
Third party suppliers	59,918		51,617		25,674		23,553
Intersegments	11,058		8,305		43,617		38,742
Total material costs	70,976		59,922		69,291		62,295
Personnel expenses	86,409		75,754		15,266		14,126
Other expenses	40,696		36,141		7,057		5,803
Depreciation & amortization	4,744		4,815		2,023		1,935
Segment income from operations	$	16,993	$	19,050	$	2,507	$	4,676

A reconciliation of the total of the reportable segments’ income from operations to consolidated net loss is as follows:

	For the Three Months Ended March 31,
(in thousands)	2022		2021
(Loss) income from operations
Patient Care	$	16,993	$	19,050
Products & Services	2,507		4,676
Corporate & other	(22,045)		(21,705)
(Loss) income from operations	(2,545)		2,021
Interest expense, net	7,385		7,340
Non-service defined benefit plan expense	160		167
Loss before income taxes	(10,090)		(5,486)
Benefit for income taxes	(2,113)		(2,156)
Net loss	$	(7,977)	$	(3,330)

A reconciliation of the reportable segments’ net revenues to consolidated net revenues is as follows:

	For the Three Months Ended March 31,
(in thousands)	2022		2021
Net revenues
Patient Care	$	219,818	$	195,682
Products & Services	96,144		88,835
Corporate & other	—		—
Consolidating adjustments	(54,675)		(47,047)
Consolidated net revenues	$	261,287	$	237,470

A reconciliation of the reportable segments’ material costs to consolidated material costs is as follows:

	For the Three Months Ended March 31,
(in thousands)	2022		2021
Material costs
Patient Care	$	70,976	$	59,922
Products & Services	69,291		62,295
Corporate & other	—		—
Consolidating adjustments	(54,675)		(47,047)
Consolidated material costs	$	85,592	$	75,170

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Organization and Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2022

Organization and Summary of Significant Accounting Policies

Basis of Presentation

Basis of Presentation

The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X, and, therefore, do not include all of the information and footnotes required by GAAP for complete financial statements.  These financial statements should be read in conjunction with the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”), as previously filed with the Securities and Exchange Commission (the “SEC”).

In our opinion, the information contained herein reflects all adjustments necessary for a fair statement of our results of operations, financial position, and cash flows. All such adjustments are of a normal, recurring nature.  The results of operations for the interim periods are not necessarily indicative of those to be expected for the full year.

A detailed description of our significant accounting policies and management judgments is contained in our 2021 Form 10-K.

Reclassifications

Reclassifications

We have reclassified certain amounts in the prior year condensed consolidated financial statements to be consistent with the current year presentation. These relate to immaterial classifications within expense line items in the condensed consolidated statements of operations.

Recent Developments Regarding COVID-19

Recent Developments Regarding COVID-19

We are subject to risks and uncertainties as a result of the outbreak of the novel coronavirus (“COVID-19”) pandemic (“COVID-19 pandemic”). The extent and duration of the impact of the COVID-19 pandemic on our operations and financial condition remain uncertain and difficult to predict. As a result of the COVID-19 pandemic, we believe that our patients are continuing to defer visits to our O&P clinics, as well as elective surgical procedures, both of which impact our business volumes through decreased patient encounters and physician referrals. Nevertheless, the overall adverse impact of the COVID-19 pandemic on our business volumes has diminished and stabilized over time, and our patient appointment and other business volumes continue to gradually improve as the prevalence of the virus decreases and COVID-19 vaccines become more widely available and accepted. It remains possible that further outbreaks of COVID-19, including the spread of variants such as the Delta and Omicron variants, or reinstitution of restrictive measures by federal, state, and local governments could cause a recessionary environment impacting the healthcare industry generally, including the O&P industry. The United States government has responded with fiscal policy measures intended to support the healthcare industry and economy as a whole, including the passage of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) in March 2020.

CARES Act

The CARES Act established the Public Health and Social Services Emergency Fund, also referred to as the Cares Act Provider Relief Fund, which set aside $203.5 billion to be administered through grants and other mechanisms to hospitals, public entities, not-for-profit entities and Medicare- and Medicaid- enrolled suppliers and institutional providers. The purpose of these funds is to reimburse providers for lost revenue and health-care related expenses that are attributable to the COVID-19 pandemic. In April 2020, the U.S. Department of Health and Human Services (“HHS”) began making payments to healthcare providers from the $203.5 billion appropriation. These are grants, rather than loans, to healthcare providers, and will not need to be repaid.

During the full year of 2021, we recognized a total benefit of $1.1 million in our consolidated statement of operations within Other operating costs in our Patient Care segment for the grant proceeds we received under the CARES Act (“Grants”) from HHS. We accounted for the proceeds from the Grants by analogy to International Accounting Standard (“IAS 20”), Accounting for Government Grants and Disclosure of Government Assistance and its principles surrounding the recognition of grants related to income. We recognize income related to grants on a systematic and rational basis when it becomes probable that we have complied with the terms and conditions of the grant and in the period in which the corresponding costs or income related to the grant are recognized. We are using the Grants for their intended purpose, and are compliant to the reporting requirements set by the terms and conditions of the grant.

The CARES Act also provided for a deferral of the employer portion of payroll taxes incurred during the COVID-19 pandemic through December 2020. The provisions allowed us to defer half of such payroll taxes until December 2021 and the remaining half until December 2022. We paid the first half in September 2021, and deferred $5.9 million of payroll taxes within Accrued compensation related costs in the condensed consolidated balance sheet as of March 31, 2022.

Recent Accounting Pronouncements, Not Yet Adopted

Recent Accounting Pronouncements, Not Yet Adopted

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU, effective beginning on March 12, 2020, provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. We are currently evaluating the effects that the adoption of this guidance, and related clarifying standards, will have on our condensed consolidated financial statements and the related disclosures.

Revenue from Contract with Customer

Revenue in our Patient Care segment is primarily derived from contracts with third party payors for the provision of O&P devices and is recognized upon the transfer of control of promised products or services to the patient at the time the patient receives the device. At, or subsequent to delivery, we issue an invoice to the third party payor, which primarily consists of commercial insurance companies, Medicare, Medicaid, the U.S. Department of Veterans Affairs (the “VA”), or private or patient pay (“Private Pay”) individuals. We recognize revenue for the amounts we expect to receive from payors based on expected contractual reimbursement rates, which are net of estimated contractual discounts and implicit price concessions. These revenue amounts are further revised as claims are adjudicated, which may result in additional disallowances. Revenue in our Products & Services segment is derived from the distribution of O&P components and from therapeutic solutions which includes the leasing and sale of rehabilitation equipment and ancillary consumable supplies combined with equipment maintenance, education, and training.

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Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2022

Earnings Per Share [Abstract]

Schedule of reconciliation of numerators and denominators used to calculate basic and diluted net income per share

The reconciliation of the numerators and denominators used to calculate basic and diluted net income per share are as follows:

	For the Three Months Ended March 31,
(in thousands except share and per share amounts)	2022		2021
Net loss	$	(7,977)	$	(3,330)
Weighted average shares outstanding - basic	38,802,420		38,268,332
Effect of potentially dilutive restricted stock units and options (1)	—		—
Weighted average shares outstanding - diluted	38,802,420		38,268,332
Basic and diluted loss per share	$	(0.21)	$	(0.09)

(1) In accordance with ASC 260 - Earnings Per Share, during periods of a net loss, shares used to compute diluted per share amounts exclude potentially dilutive shares related to unvested restricted stock units and unexercised options. For the three months ended March 31, 2022 and 2021, potentially dilutive shares of 490,081 and 906,116 shares, respectively, were excluded, as we were in a net loss position.

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Revenue Recognition (Tables)

3 Months Ended

Mar. 31, 2022

Revenue from Contract with Customer [Abstract]

Schedule of disaggregates of revenue from contracts with customers

The following table disaggregates revenue from contracts with customers in our Patient Care segment for the three months ended March 31, 2022 and 2021:

	For the Three Months Ended March 31,
(in thousands)	2022		2021
Patient Care Segment
Medicare	$	65,854	$	57,335
Medicaid	39,272		34,048
Commercial insurance / managed care (excluding Medicare and Medicaid managed care)	77,343		69,663
VA	21,049		19,764
Private Pay	16,300		14,872
Total	$	219,818	$	195,682

The following table disaggregates revenue from contracts with customers in our Products & Services segment for the three months ended March 31, 2022 and 2021:

	For the Three Months Ended March 31,
(in thousands)	2022		2021
Products & Services Segment
Distribution services, net of intersegment revenue eliminations	$	31,390	$	30,660
Therapeutic solutions	10,079		11,128
Total	$	41,469	$	41,788

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Accounts Receivable, Net (Tables)

3 Months Ended

Mar. 31, 2022

Accounts Receivable, after Allowance for Credit Loss [Abstract]

Schedule of accounts receivable, net

Accounts receivable, net as of March 31, 2022 and December 31, 2021 is comprised of the following:

	As of March 31, 2022						As of December 31, 2021
(in thousands)	Patient Care		Products & Services		Consolidated		Patient Care		Products & Services		Consolidated
Gross charges before estimates for implicit price concessions	$	157,814	$	21,089	$	178,903	$	173,115	$	21,459	$	194,574
Less estimates for implicit price concessions:
Payor disallowances	(30,300)		—		(30,300)		(33,007)		—		(33,007)
Patient non-payments	(7,059)		—		(7,059)		(7,500)		—		(7,500)
Accounts receivable, gross	120,455		21,089		141,544		132,608		21,459		154,067
Allowance for doubtful accounts	—		(1,927)		(1,927)		—		(2,009)		(2,009)
Accounts receivable, net	$	120,455	$	19,162	$	139,617	$	132,608	$	19,450	$	152,058

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Inventories (Tables)

3 Months Ended

Mar. 31, 2022

Inventory Disclosure [Abstract]

Schedule of inventories

Our inventories are comprised of the following:

	As of March 31,		As of December 31,
(in thousands)	2022		2021
Raw materials	$	22,569	$	22,759
Work in process	19,783		15,807
Finished goods	40,936		48,896
Total inventories	$	83,288	$	87,462

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Acquisitions (Tables)

3 Months Ended

Mar. 31, 2022

Business Combination and Asset Acquisition [Abstract]

Schedule of aggregate purchase price of acquisitions allocated on a preliminary basis

The aggregate purchase price of this acquisition was allocated on a preliminary basis as follows:

(in thousands)
Cash paid, net of cash acquired	$	4,001
Issuance of Seller Notes at fair value	981
Aggregate purchase price	4,982
Accounts receivable	310
Inventories	85
Customer relationships (Weighted average useful life of 5.0 years)	500
Non-compete agreements (Weighted average useful life of 5.0 years)	243
Other assets and liabilities, net	(103)
Net assets acquired	1,035
Goodwill	$	3,947

The aggregate purchase price of these acquisitions was allocated on a preliminary basis as follows:

(in thousands)
Cash paid, net of cash acquired	$	79,927
Issuance of Seller Notes at fair value	22,706
Additional consideration, net	1,925
Aggregate purchase price	104,558
Accounts receivable	6,569
Inventories	4,683
Customer relationships (Weighted average useful life of 5.0 years)	11,745
Non-compete agreements (Weighted average useful life of 5.0 years)	558
Other assets and liabilities, net	(5,121)
Net assets acquired	18,434
Goodwill	$	86,124

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Goodwill and Other Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of goodwill allocated to the Company's reportable segments

The following table summarizes the activity in goodwill of the Patient Care operating segment for the period indicated:

	For the Three Months Ended March 31, 2022
(in thousands)	Goodwill, Gross		Accumulated Impairment		Goodwill, Net
As of December 31, 2021	$	792,222	$	(428,668)	$	363,554
Additions from acquisitions	3,947		—		3,947
Measurement period adjustments (1)	413		—		413
As of March 31, 2022	$	796,582	$	(428,668)	$	367,914

(1) Measurement period adjustments relate to 2021 acquisitions of approximately $0.4 million and are primarily attributable to adjustments to the preliminary allocations of acquired assets.

Schedule of balances related to indefinite-lived intangible assets

The balances related to intangible assets as of March 31, 2022 are as follows:

	As of March 31, 2022
(in thousands)	Gross Carrying Amount		Accumulated Amortization		Accumulated Impairment		Net Carrying Amount
Customer lists	$	29,124	$	(11,364)	$	—	$	17,760
Trade name	255		(208)		—		47
Patents and other intangibles	9,815		(6,707)		—		3,108
Definite-lived intangible assets	39,194		(18,279)		—		20,915
Indefinite-lived trade name	9,070		—		(4,953)		4,117
Total other intangible assets	$	48,264	$	(18,279)	$	(4,953)	$	25,032

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Other Current Assets and Other Assets (Tables)

3 Months Ended

Mar. 31, 2022

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Schedule of other current assets

Other current assets consist of the following:

	As of March 31,		As of December 31,
(in thousands)	2022		2021
Non-trade receivables	$	6,291	$	7,725
Prepaid maintenance	4,781		4,553
Prepaid insurance	2,397		510
Other prepaid assets	5,058		3,748
Total other current assets	$	18,527	$	16,536

Schedule of other assets

Other assets consist of the following:

	As of March 31,		As of December 31,
(in thousands)	2022		2021
Implementation costs for cloud computing arrangements	$	6,301	$	6,459
Cash surrender value of company-owned life insurance	4,235		4,471
Finance lease right-of-use assets	2,536		2,732
Deposits	2,214		2,178
Non-trade receivables	1,583		1,172
Other	1,975		933
Total other assets	$	18,844	$	17,945

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Accrued Expenses and Other Current Liabilities and Other Liabilities (Tables)

3 Months Ended

Mar. 31, 2022

Payables and Accruals [Abstract]

Schedule of accrued expenses and other current liabilities

Accrued expenses and other current liabilities consist of:

	As of March 31,		As of December 31,
(in thousands)	2022		2021
Patient prepayments, deposits, and refunds payable	$	28,992	$	26,475
Insurance and self-insurance accruals	9,296		8,943
Accrued sales taxes and other taxes	7,900		7,803
Derivative liability	2,698		6,425
Accrued professional fees	710		750
Accrued interest payable	723		707
Other current liabilities	8,072		9,296
Total	$	58,391	$	60,399

Schedule of other liabilities

Other liabilities consist of:

	As of March 31,		As of December 31,
(in thousands)	2022		2021
Supplemental executive retirement plan obligations	$	19,018	$	20,779
Long-term insurance accruals	7,264		7,112
Derivative liability	—		4,664
Other	2,238		2,285
Total	$	28,520	$	34,840

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Debt and Other Obligations (Tables)

3 Months Ended

Mar. 31, 2022

Debt Disclosure [Abstract]

Schedule of debt

Debt consists of the following:

	As of March 31,		As of December 31,
(in thousands)	2022		2021
Debt:
Term Loan B	$	484,800	$	486,063
Seller Notes	27,725		29,812
Deferred payment obligation	4,000		4,000
Finance lease liabilities and other	3,097		3,344
Total debt before unamortized discount and debt issuance costs	519,622		523,219
Unamortized discount and debt issuance costs, net	(5,532)		(5,974)
Total debt	$	514,090	$	517,245
Current portion of long-term debt:
Term Loan B	$	5,050	$	5,050
Seller Notes	7,595		8,969
Finance lease liabilities and other	890		919
Total current portion of long-term debt	13,535		14,938
Long-term debt	$	500,555	$	502,307

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Derivative Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of activity of cash flow hedges included in accumulated other comprehensive loss

The following table presents the activity of cash flow hedges included in accumulated other comprehensive loss for the three months ended March 31, 2022 and 2021, respectively:

(in thousands)	Cash Flow Hedges
Balance as of December 31, 2021	$	(8,504)
Unrealized gain recognized in other comprehensive income before reclassifications, net of tax	5,020
Reclassification to interest expense, net of tax	1,876
Balance as of March 31, 2022	$	(1,608)
Balance as of December 31, 2020	$	(16,771)
Unrealized gain recognized in other comprehensive loss before reclassifications, net of tax	529
Reclassification to interest expense, net of tax	1,983
Balance as of March 31, 2021	$	(14,259)

Schedule of fair value of derivative assets and liabilities within the consolidated balance sheets

The following table presents the fair value of derivative assets and liabilities within the condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021:

	As of March 31, 2022				As of December 31, 2021
(in thousands)	Assets		Liabilities		Assets		Liabilities
Derivatives designated as cash flow hedging instruments:
Other assets	$	563	$	—	$	—	$	—
Accrued expenses and other current liabilities	—		2,698		—		6,425
Other liabilities	—		—		—		4,664

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Supplemental Executive Retirement Plans (Tables)

3 Months Ended

Mar. 31, 2022

Retirement Benefits [Abstract]

Schedule of Change in Benefit Obligation

The change in net benefit cost and obligation during the three months ended March 31, 2022 and 2021 is as follows:

Change in Benefit Obligation:
(in thousands)	2022		2021
Benefit obligation as of December 31, 2021 and 2020, respectively	$	17,935	$	19,746
Service cost	116		123
Interest cost	99		87
Payments	(1,877)		(1,877)
Benefit obligation as of March 31	$	16,273	$	18,079

Schedule of Amounts Recognized in the Consolidated Balance Sheets

Amounts Recognized in the Condensed Consolidated Balance Sheets:
	As of March 31,		As of December 31,
(in thousands)	2022		2021
Current accrued expenses and other current liabilities	$	1,913	$	1,913
Non-current other liabilities	14,360		16,022
Total accrued liabilities	$	16,273	$	17,935

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Segment and Related Information (Tables)

3 Months Ended

Mar. 31, 2022

Segment Reporting [Abstract]

Summary of financial information concerning the Company's reporting segments

Summarized financial information concerning our reportable segments is shown in the following tables. Total assets for each of the segments has not materially changed from December 31, 2021.

	Patient Care				Products & Services
	For the Three Months Ended March 31,				For the Three Months Ended March 31,
(in thousands)	2022		2021		2022		2021
Net revenues
Third party	$	219,818	$	195,682	$	41,469	$	41,788
Intersegments	—		—		54,675		47,047
Total net revenues	219,818		195,682		96,144		88,835
Material costs
Third party suppliers	59,918		51,617		25,674		23,553
Intersegments	11,058		8,305		43,617		38,742
Total material costs	70,976		59,922		69,291		62,295
Personnel expenses	86,409		75,754		15,266		14,126
Other expenses	40,696		36,141		7,057		5,803
Depreciation & amortization	4,744		4,815		2,023		1,935
Segment income from operations	$	16,993	$	19,050	$	2,507	$	4,676

Schedule of reconciliation of reportable segments

A reconciliation of the total of the reportable segments’ income from operations to consolidated net loss is as follows:

	For the Three Months Ended March 31,
(in thousands)	2022		2021
(Loss) income from operations
Patient Care	$	16,993	$	19,050
Products & Services	2,507		4,676
Corporate & other	(22,045)		(21,705)
(Loss) income from operations	(2,545)		2,021
Interest expense, net	7,385		7,340
Non-service defined benefit plan expense	160		167
Loss before income taxes	(10,090)		(5,486)
Benefit for income taxes	(2,113)		(2,156)
Net loss	$	(7,977)	$	(3,330)

A reconciliation of the reportable segments’ net revenues to consolidated net revenues is as follows:

	For the Three Months Ended March 31,
(in thousands)	2022		2021
Net revenues
Patient Care	$	219,818	$	195,682
Products & Services	96,144		88,835
Corporate & other	—		—
Consolidating adjustments	(54,675)		(47,047)
Consolidated net revenues	$	261,287	$	237,470

A reconciliation of the reportable segments’ material costs to consolidated material costs is as follows:

	For the Three Months Ended March 31,
(in thousands)	2022		2021
Material costs
Patient Care	$	70,976	$	59,922
Products & Services	69,291		62,295
Corporate & other	—		—
Consolidating adjustments	(54,675)		(47,047)
Consolidated material costs	$	85,592	$	75,170

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Organization and Summary of Significant Accounting Policies (Details) $ in Millions	3 Months Ended	12 Months Ended
	Mar. 31, 2022 USD ($) segment	Dec. 31, 2021 USD ($)
Organization and Summary of Significant Accounting Policies
Number of operating segments | segment	2
Proceeds received from grant		$ 1.1
Deferred payroll taxes under CARES Act	$ 5.9

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Earnings Per Share - Narrative (Details) - shares	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Earnings Per Share [Abstract]
Total anti-dilutive shares (in shares)	32,891	3,471

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Earnings Per Share - Schedule of reconciliation of numerators and denominators used to calculate basic and diluted net income per share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Net loss	$ (7,977)	$ (3,330)
Weighted average shares outstanding - basic (in shares)	38,802,420	38,268,332
Effect of potentially dilutive restricted stock units and options (in shares)	0	0
Weighted average shares outstanding - diluted (in shares)	38,802,420	38,268,332
Basic loss per share (in dollars per share)	$ (0.21)	$ (0.09)
Diluted loss per share (in dollars per share)	$ (0.21)	$ (0.09)
Total anti-dilutive shares (in shares)	32,891	3,471
Share-based Payment Arrangement
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Total anti-dilutive shares (in shares)	490,081	906,116

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Revenue Recognition (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Revenue Recognition
Net revenues	$ 261,287	$ 237,470
Patient Care
Revenue Recognition
Net revenues	219,818	195,682
Patient Care | Operating Segments
Revenue Recognition
Net revenues	219,818	195,682
Patient Care | Medicare | Operating Segments
Revenue Recognition
Net revenues	65,854	57,335
Patient Care | Medicaid | Operating Segments
Revenue Recognition
Net revenues	39,272	34,048
Patient Care | Commercial insurance / managed care (excluding Medicare and Medicaid managed care) | Operating Segments
Revenue Recognition
Net revenues	77,343	69,663
Patient Care | VA | Operating Segments
Revenue Recognition
Net revenues	21,049	19,764
Patient Care | Private Pay | Operating Segments
Revenue Recognition
Net revenues	16,300	14,872
Products & Services
Revenue Recognition
Net revenues	96,144	88,835
Products & Services | Operating Segments
Revenue Recognition
Net revenues	41,469	41,788
Products & Services | Distribution services, net of intersegment revenue eliminations | Operating Segments
Revenue Recognition
Net revenues	31,390	30,660
Products & Services | Therapeutic solutions | Operating Segments
Revenue Recognition
Net revenues	$ 10,079	$ 11,128

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Accounts Receivable, Net - Narrative (Details) $ in Millions	3 Months Ended
	Mar. 31, 2022 USD ($)
Accounts Receivable, after Allowance for Credit Loss [Abstract]
Decrease in allowance for doubtful accounts	$ 0.1

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Accounts Receivable, Net - Schedule of accounts receivable, net (Details) - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Accounts Receivable, net
Gross charges before estimates for implicit price concessions	$ 178,903	$ 194,574
Less estimates for implicit price concessions:
Payor disallowances	(30,300)	(33,007)
Patient non-payments	(7,059)	(7,500)
Accounts receivable, gross	141,544	154,067
Allowance for doubtful accounts	(1,927)	(2,009)
Accounts receivable, net	139,617	152,058
Patient Care
Accounts Receivable, net
Gross charges before estimates for implicit price concessions	157,814	173,115
Less estimates for implicit price concessions:
Payor disallowances	(30,300)	(33,007)
Patient non-payments	(7,059)	(7,500)
Accounts receivable, gross	120,455	132,608
Allowance for doubtful accounts	0	0
Accounts receivable, net	120,455	132,608
Products & Services
Accounts Receivable, net
Gross charges before estimates for implicit price concessions	21,089	21,459
Less estimates for implicit price concessions:
Payor disallowances	0	0
Patient non-payments	0	0
Accounts receivable, gross	21,089	21,459
Allowance for doubtful accounts	(1,927)	(2,009)
Accounts receivable, net	$ 19,162	$ 19,450

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Inventories (Details) - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Inventories
Raw materials	$ 22,569	$ 22,759
Work in process	19,783	15,807
Finished goods	40,936	48,896
Total inventories	$ 83,288	$ 87,462

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Acquisitions - Narrative (Details) $ in Thousands	1 Months Ended	3 Months Ended						12 Months Ended
	Mar. 31, 2022 USD ($) business	Jun. 30, 2022 USD ($) business	Mar. 31, 2022 USD ($)	Dec. 31, 2021 USD ($) business	Sep. 30, 2021 USD ($) business	Jun. 30, 2021 USD ($) business	Mar. 31, 2021 USD ($) business	Dec. 31, 2021 USD ($)
Acquisitions
Cash paid, net of cash acquired			$ 4,001				$ 19,377
Acquisition-related costs			100					$ 2,100
General and Administrative Expense
Acquisitions
Acquisition-related costs			300
2022 Acquisitions
Acquisitions
Aggregate purchase price			4,982
Cash paid, net of cash acquired			4,001
Consideration paid in cash			4,000
Issuance of Seller Notes at fair value			981
Operating right-of-use assets	$ 400		400
Operating lease liabilities	400		$ 400
2022 Acquisitions | Subsequent Event
Acquisitions
Aggregate purchase price		$ 3,200
Consideration paid in cash		$ 2,400
Number of businesses acquired | business		1
Additional consideration, net		$ 800
March 2022 Acquisition
Acquisitions
Aggregate purchase price	$ 9,000
Number of businesses acquired | business	1
2021 Acquisitions
Acquisitions
Aggregate purchase price				$ 53,100	$ 6,200	$ 21,000	24,200	104,558
Cash paid, net of cash acquired								79,927
Consideration paid in cash				40,800	3,900	16,000	19,200
Issuance of Seller Notes at fair value				12,300	$ 1,500	$ 4,900	$ 4,000	22,706
Acquisition-related costs								1,600
Operating right-of-use assets				8,900				8,900
Operating lease liabilities				$ 8,900				8,900
Number of businesses acquired | business				8	3	2	3
Number of business' assets acquired | business					1		1
Additional consideration, net					$ 800	$ 100	$ 1,000	$ 1,925

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Acquisitions - Schedule of aggregate purchase price of acquisitions allocated on a preliminary basis (Details) - USD ($) $ in Thousands	3 Months Ended					12 Months Ended
	Mar. 31, 2022	Dec. 31, 2021	Sep. 30, 2021	Jun. 30, 2021	Mar. 31, 2021	Dec. 31, 2021
Acquisitions
Cash paid, net of cash acquired	$ 4,001				$ 19,377
2022 Acquisitions
Acquisitions
Cash paid, net of cash acquired	4,001
Issuance of Seller Notes at fair value	981
Aggregate purchase price	4,982
Accounts receivable	310
Inventories	85
Other assets and liabilities, net	(103)
Net assets acquired	1,035
Goodwill	3,947
2022 Acquisitions | Customer relationships
Acquisitions
Other intangible assets, net	$ 500
Weighted average useful life of intangible assets	5 years
2022 Acquisitions | Non-compete agreements
Acquisitions
Other intangible assets, net	$ 243
Weighted average useful life of intangible assets	5 years
2021 Acquisitions
Acquisitions
Cash paid, net of cash acquired						$ 79,927
Issuance of Seller Notes at fair value		$ 12,300	$ 1,500	$ 4,900	4,000	22,706
Additional consideration, net			800	100	1,000	1,925
Aggregate purchase price		53,100	$ 6,200	$ 21,000	$ 24,200	104,558
Accounts receivable		6,569				6,569
Inventories		4,683				4,683
Other assets and liabilities, net		(5,121)				(5,121)
Net assets acquired		18,434				18,434
Goodwill						86,124
2021 Acquisitions | Customer relationships
Acquisitions
Other intangible assets, net		11,745				$ 11,745
Weighted average useful life of intangible assets						5 years
2021 Acquisitions | Non-compete agreements
Acquisitions
Other intangible assets, net		$ 558				$ 558
Weighted average useful life of intangible assets						5 years

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Goodwill and Other Intangible Assets - Goodwill (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2022	Dec. 31, 2021
Goodwill allocated
Goodwill, Net as of beginning of the year	$ 363,554
Goodwill, Net as of end of the year	367,914	$ 363,554
2021 Acquisitions
Goodwill allocated
Additions from acquisitions		86,124
Measurement period adjustments related to acquisitions	400
Patient Care
Goodwill allocated
Goodwill, Gross as of beginning of the period	792,222
Accumulated Impairment as of beginning of the period	(428,668)
Goodwill, Net as of beginning of the year	363,554
Additions from acquisitions	3,947
Measurement period adjustments	413
Goodwill, Gross as of end of the period	796,582	792,222
Accumulated Impairment as of end of the period	(428,668)	(428,668)
Goodwill, Net as of end of the year	$ 367,914	$ 363,554

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Goodwill and Other Intangible Assets - Narrative (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Goodwill and Intangible Assets Disclosure [Abstract]
Amortization expense	$ 1.6	$ 1.0

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Goodwill and Other Intangible Assets - Intangible Assets (Details) $ in Thousands	Mar. 31, 2022 USD ($)
GOODWILL AND OTHER INTANGIBLE ASSETS
Definite-lived, Gross Carrying Amount	$ 39,194
Definite-lived, Accumulated Amortization	(18,279)
Definite-lived, Net Carrying Amount	20,915
Total other intangible assets, Gross Carrying Amount	48,264
Total other intangible assets, Accumulated Amortization	(18,279)
Accumulated Impairment	(4,953)
Total other intangible assets, Net Carrying Amount	25,032
Trade name
GOODWILL AND OTHER INTANGIBLE ASSETS
Indefinite lived, Gross Carrying Amount	9,070
Indefinite lived, Accumulated Impairment	(4,953)
Indefinite lived, Net Carrying Amount	4,117
Customer lists
GOODWILL AND OTHER INTANGIBLE ASSETS
Definite-lived, Gross Carrying Amount	29,124
Definite-lived, Accumulated Amortization	(11,364)
Definite-lived, Net Carrying Amount	17,760
Trade name
GOODWILL AND OTHER INTANGIBLE ASSETS
Definite-lived, Gross Carrying Amount	255
Definite-lived, Accumulated Amortization	(208)
Definite-lived, Net Carrying Amount	47
Patents and other intangibles
GOODWILL AND OTHER INTANGIBLE ASSETS
Definite-lived, Gross Carrying Amount	9,815
Definite-lived, Accumulated Amortization	(6,707)
Definite-lived, Net Carrying Amount	$ 3,108

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Other Current Assets and Other Assets - Other current assets (Details) - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Non-trade receivables	$ 6,291	$ 7,725
Prepaid maintenance	4,781	4,553
Prepaid insurance	2,397	510
Other prepaid assets	5,058	3,748
Total other current assets	$ 18,527	$ 16,536

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Other Current Assets and Other Assets - Other assets (Details) - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Implementation costs for cloud computing arrangements	$ 6,301	$ 6,459
Cash surrender value of company-owned life insurance	4,235	4,471
Finance lease right-of-use assets	2,536	2,732
Deposits	2,214	2,178
Non-trade receivables	1,583	1,172
Other	1,975	933
Total other assets	$ 18,844	$ 17,945

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Accrued Expenses and Other Current Liabilities and Other Liabilities - Accrued expenses and other current liabilities (Details) - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Payables and Accruals [Abstract]
Patient prepayments, deposits, and refunds payable	$ 28,992	$ 26,475
Insurance and self-insurance accruals	9,296	8,943
Accrued sales taxes and other taxes	7,900	7,803
Derivative liability	2,698	6,425
Accrued professional fees	710	750
Accrued interest payable	723	707
Other current liabilities	8,072	9,296
Total	$ 58,391	$ 60,399

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Accrued Expenses and Other Current Liabilities and Other Liabilities - Other liabilities (Details) - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Payables and Accruals [Abstract]
Supplemental executive retirement plan obligations	$ 19,018	$ 20,779
Long-term insurance accruals	7,264	7,112
Derivative liability	0	4,664
Other	2,238	2,285
Total	$ 28,520	$ 34,840

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Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2022	Mar. 31, 2021	Dec. 31, 2022	Dec. 31, 2021
Income Tax Contingency [Line Items]
Income tax expense (benefit)	$ (2,113)	$ (2,156)
Effective tax rate (as a percent)	20.90%	39.30%
Recognition of tax benefits, current year				$ 4,300
Forecast
Income Tax Contingency [Line Items]
Recognition of tax benefits, current year			$ 2,700

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Debt and Other Obligations (Details) - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Debt and Other Obligations
Total debt before unamortized discount and debt issuance costs	$ 519,622	$ 523,219
Unamortized discount and debt issuance costs, net	(5,532)	(5,974)
Total debt	514,090	517,245
Total current portion of long-term debt	13,535	14,938
Long-term debt	500,555	502,307
Term Loan B
Debt and Other Obligations
Total debt before unamortized discount and debt issuance costs	484,800	486,063
Unamortized discount and debt issuance costs, net	(4,700)	(5,100)
Total current portion of long-term debt	5,050	5,050
Seller Notes
Debt and Other Obligations
Total debt before unamortized discount and debt issuance costs	27,725	29,812
Total current portion of long-term debt	7,595	8,969
Deferred payment obligation
Debt and Other Obligations
Total debt before unamortized discount and debt issuance costs	4,000	4,000
Finance lease liabilities and other
Debt and Other Obligations
Total debt before unamortized discount and debt issuance costs	3,097	3,344
Total current portion of long-term debt	$ 890	$ 919

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Debt and Other Obligations - Narrative (Details)	3 Months Ended
	Mar. 31, 2022 USD ($) qtr increase_in_ratio	Dec. 31, 2021 USD ($)
Debt and Other Obligations
Outstanding amount of debt	$ 519,622,000	$ 523,219,000
Term Loan B
Debt and Other Obligations
Outstanding amount of debt	484,800,000	486,063,000
Seller Notes
Debt and Other Obligations
Outstanding amount of debt	27,725,000	29,812,000
Unamortized discount	$ 800,000	900,000
Seller Notes | Minimum
Debt and Other Obligations
Stated interest rates (as a percent)	2.50%
Seller Notes | Maximum
Debt and Other Obligations
Stated interest rates (as a percent)	3.00%
Deferred payment obligation
Debt and Other Obligations
Outstanding amount of debt	$ 4,000,000	4,000,000
Unamortized discount	$ 400,000	$ 400,000
Stated interest rates (as a percent)	3.00%
Annual installment payment period	3 years
Credit Agreement | Term Loan B
Debt and Other Obligations
Outstanding amount of debt	$ 484,800,000
Credit Agreement | Loans Payable
Debt and Other Obligations
Weighted average interest rate	3.60%
Revolving Credit Facility | Credit Agreement
Debt and Other Obligations
Outstanding amount of debt	$ 129,800,000
Maximum borrowing capacity	135,000,000
Letters of credit outstanding amount	$ 5,200,000
Increase in margin (as a percent)	50.00%
Number of increases in maximum leverage ratio | increase_in_ratio	3
Increase (decrease) in maximum allowable leverage ratio	50.00%
Number of consecutive fiscal quarters | qtr	4
Interest rate in excess of applicable rate upon acceleration and default (as a percent)	2.00%
Revolving Credit Facility | Credit Agreement | Fiscal Quarters Ended December 31, 2021, March 31, 2022, June 30, 2022 and September 30, 2022
Debt and Other Obligations
Consolidated leverage ratio	500.00%
Revolving Credit Facility | Credit Agreement | Fiscal Quarters Ended December 31, 2022
Debt and Other Obligations
Consolidated leverage ratio	475.00%
Revolving Credit Facility | Credit Agreement | Last day of any fiscal quarter
Debt and Other Obligations
Consolidated leverage ratio	275.00%
Revolving Credit Facility | Credit Agreement | London Interbank Offered Rate (LIBOR)
Debt and Other Obligations
Interest rate margin (as a percent)	1.00%
Revolving Credit Facility | Credit Agreement | Fed Funds Effective Rate Overnight Index Swap Rate
Debt and Other Obligations
Interest rate margin (as a percent)	0.50%
Revolving Credit Facility | Credit Agreement | Minimum
Debt and Other Obligations
Unused commitment fee (as a percent)	0.375%
Revolving Credit Facility | Credit Agreement | Minimum | London Interbank Offered Rate (LIBOR)
Debt and Other Obligations
Interest rate margin (as a percent)	0.00%
Revolving Credit Facility | Credit Agreement | Maximum
Debt and Other Obligations
Unused commitment fee (as a percent)	0.50%

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Debt and Other Obligations - Seller notes and the deferred payment obligation (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2022	Dec. 31, 2021
Seller Notes
Debt and Other Obligations
Unamortized discount	$ 0.8	$ 0.9
Seller Notes | Minimum
Debt and Other Obligations
Stated interest rates (as a percent)	2.50%
Seller Notes | Maximum
Debt and Other Obligations
Stated interest rates (as a percent)	3.00%
Deferred payment obligation
Debt and Other Obligations
Unamortized discount	$ 0.4	$ 0.4
Stated interest rates (as a percent)	3.00%
Annual installment payment period	3 years

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Fair Value Measurements (Details) - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
FAIR VALUE MEASUREMENTS
Unamortized discount and debt issuance costs, net	$ 5,532	$ 5,974
Total debt before unamortized discount and debt issuance costs	519,622	523,219
Term Loan B
FAIR VALUE MEASUREMENTS
Unamortized discount and debt issuance costs, net	4,700	5,100
Total debt before unamortized discount and debt issuance costs	484,800	486,063
Term Loan B | Fair Value, Recurring | Fair Value, Inputs, Level 3 | Estimate of Fair Value Measurement
FAIR VALUE MEASUREMENTS
Debt	477,500	484,800
Seller Notes
FAIR VALUE MEASUREMENTS
Total debt before unamortized discount and debt issuance costs	27,725	29,812
Seller Notes | Fair Value, Inputs, Level 3 | Reported Value Measurement
FAIR VALUE MEASUREMENTS
Unamortized discount and debt issuance costs, net	800	900
Outstanding amount	$ 30,900	$ 32,900

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Derivative Financial Instruments - Cash flow hedge (Details) - Interest Rate Swap - Cash Flow Hedging - USD ($) $ in Millions	Mar. 31, 2022	Dec. 31, 2021	Mar. 31, 2018
DERIVATIVE FINANCIAL INSTRUMENTS
Notional amount of derivative instrument	$ 275.0	$ 287.5	$ 325.0
Annual reduction in notional amount of derivative			$ 12.5

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Derivative Financial Instruments - Changes in net loss on cash flow hedges included in accumulated other comprehensive income (loss) (Details) - Interest Rate Swap - Cash Flow Hedging - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Changes in Net Gain or Loss on Cash Flow Hedges Included in Accumulated Other Comprehensive Income (Loss)
Balance at the beginning of the period	$ (8,504)	$ (16,771)
Unrealized gain recognized in other comprehensive income (loss), net of tax	5,020	529
Reclassification to interest expense, net of tax	1,876	1,983
Balance at the end of the period	$ (1,608)	$ (14,259)

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Derivative Financial Instruments - Fair value of derivative assets and liabilities (Details) - Cash Flow Hedging - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Other assets
Derivatives designated as cash flow hedging instruments:
Assets	$ 563	$ 0
Liabilities	0	0
Accrued expenses and other current liabilities
Derivatives designated as cash flow hedging instruments:
Assets	0	0
Liabilities	2,698	6,425
Other liabilities
Derivatives designated as cash flow hedging instruments:
Assets	0	0
Liabilities	$ 0	$ 4,664

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Share-Based Compensation (Details) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021	May 17, 2019
Share Based Compensation
Options outstanding and exercisable (in share)	275,783
Weighted average exercise price of options exercisable (in dollars per share)	$ 12.77
Average remaining contractual term of options exercisable	4 years 9 months 18 days
Stock-based compensation expense	$ 2.9	$ 3.2
2019 Omnibus Incentive Plan
Share Based Compensation
Shares of common stock authorized for issuance under the share-based compensation plan (in shares)			2,025,000
2016 Omnibus Incentive Plan
Share Based Compensation
Available for issuance (in shares)			243,611
Performance-Based Stock Awards
Share Based Compensation
Shares outstanding (in shares)	392,764
Weighted average grant date fair value (in dollars per share)	$ 20.57
Restricted Stock
Share Based Compensation
Shares outstanding (in shares)	1,609,030
Employee Service Based Awards
Share Based Compensation
Shares outstanding (in shares)	1,166,910
Weighted average grant date fair value (in dollars per share)	$ 20.65
Director Service Based Awards
Share Based Compensation
Shares outstanding (in shares)	49,356
Weighted average grant date fair value (in dollars per share)	$ 25.53

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Supplemental Executive Retirement Plans - Plan details and change in benefit obligation (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2022 USD ($) payment	Mar. 31, 2021 USD ($)	Dec. 31, 2021 USD ($)
Retirement Benefits [Abstract]
Number of annual payments | payment	15
Change in Benefit Obligation
Benefit obligation at the beginning of the period	$ 17,935	$ 19,746
Service cost	116	123
Interest cost	99	87
Payments	(1,877)	(1,877)
Benefit obligation at the end of the period	16,273	$ 18,079
Amounts Recognized in the Condensed Consolidated Balance Sheets:
Current accrued expenses and other current liabilities	1,913		$ 1,913
Non-current other liabilities	14,360		16,022
Total accrued liabilities	$ 16,273		$ 17,935

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Supplemental Executive Retirement Plans - DC SERP (Details) - USD ($) $ in Millions	Mar. 31, 2022	Dec. 31, 2021
Retirement Benefits [Abstract]
Estimated accumulated benefit obligation	$ 4.7	$ 4.8
Funded estimated accumulated benefit obligation	4.5	4.1
Unfunded estimated accumulated benefit obligation	$ 0.2	$ 0.6

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Segment and Related Information - Narrative (Details)	3 Months Ended
	Mar. 31, 2022 segment
Segment Reporting [Abstract]
Number of operating segments	2

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Segment and Related Information - Financial information (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Net revenue
Net revenues	$ 261,287	$ 237,470
Material costs	85,592	75,170
Personnel expenses	101,675	89,880
Depreciation & amortization	7,955	7,998
(Loss) income from operations	(2,545)	2,021
Patient Care
Net revenue
Net revenues	219,818	195,682
Material costs	70,976	59,922
Personnel expenses	86,409	75,754
Other expenses	40,696	36,141
Depreciation & amortization	4,744	4,815
(Loss) income from operations	16,993	19,050
Patient Care | Operating Segments
Net revenue
Net revenues	219,818	195,682
Material costs	59,918	51,617
(Loss) income from operations	16,993	19,050
Patient Care | Intersegment Eliminations
Net revenue
Net revenues	0	0
Material costs	11,058	8,305
Products & Services
Net revenue
Net revenues	96,144	88,835
Material costs	69,291	62,295
Personnel expenses	15,266	14,126
Other expenses	7,057	5,803
Depreciation & amortization	2,023	1,935
(Loss) income from operations	2,507	4,676
Products & Services | Operating Segments
Net revenue
Net revenues	41,469	41,788
Material costs	25,674	23,553
(Loss) income from operations	2,507	4,676
Products & Services | Intersegment Eliminations
Net revenue
Net revenues	54,675	47,047
Material costs	$ 43,617	$ 38,742

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Segment and Related Information - Reconciliation of the reportable segments (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Segment and Related Information
Operating Income (Loss)	$ (2,545)	$ 2,021
Interest expense, net	7,385	7,340
Non-service defined benefit plan expense	160	167
Loss before income taxes	(10,090)	(5,486)
Benefit for income taxes	(2,113)	(2,156)
Net loss	(7,977)	(3,330)
Consolidated net revenues	261,287	237,470
Consolidated material costs	85,592	75,170
Corporate & other
Segment and Related Information
Operating Income (Loss)	(22,045)	(21,705)
Consolidated net revenues	0	0
Consolidating adjustments
Segment and Related Information
Consolidated net revenues	(54,675)	(47,047)
Patient Care
Segment and Related Information
Operating Income (Loss)	16,993	19,050
Consolidated net revenues	219,818	195,682
Consolidated material costs	70,976	59,922
Patient Care | Operating Segments
Segment and Related Information
Operating Income (Loss)	16,993	19,050
Consolidated net revenues	219,818	195,682
Consolidated material costs	59,918	51,617
Products & Services
Segment and Related Information
Operating Income (Loss)	2,507	4,676
Consolidated net revenues	96,144	88,835
Consolidated material costs	69,291	62,295
Products & Services | Operating Segments
Segment and Related Information
Operating Income (Loss)	2,507	4,676
Consolidated net revenues	41,469	41,788
Consolidated material costs	$ 25,674	$ 23,553