BUSINESSWIRE PRESS RELEASE
Invacare Reports Results for Second Quarter 2018
BUSINESSWIRE PRESS RELEASE
Invacare Reports Results for Second Quarter 2018
BUSINESSWIRE PRESS RELEASE
Invacare Reports Results for Second Quarter 2018
Aug. 07, 2018
ELYRIA, Ohio--(BUSINESS WIRE)--Aug 7, 2018--Invacare Corporation (NYSE:IVC) ("Invacare" or the "company") today reported results for the quarter ended June 30, 2018.
Second Quarter 2018 HighlightsReported net sales increased 5.4% to $246.2 million while constant currency net sales (a) decreased 0.5% compared to 2Q17*. Constant currency sequential net sales (b) increased 4.2% compared to 1Q18. Constant currency sequential net sales increased in all segments except Institutional Products Group ("IPG"). Gross margin as a percentage of net sales decreased 40 basis points to 27.4% compared to 2Q17 primarily as a result of higher expedited freight costs incurred in the North America/Home Medical Equipment ("NA/HME") and Europe segments partially offset by foreign currency and reduced warranty expense. Operating loss was $6.8 million, an improvement of $8.9 million compared to 2Q17, with improved operating performance in the NA/HME and Asia Pacific segments and reduced restructuring costs. GAAP loss per share was $0.50, compared to loss per share of $0.72 in 2Q17, and adjusted net loss per share (c) was $0.41 compared to adjusted net loss per share of $0.63 in 2Q17. GAAP loss per share was negatively impacted by $0.07 per share ($2.2 million) in increased net interest expense due to the company's convertible debt issuance in 2Q17. Free cash flow (d) usage was $24.6 million compared to usage of $22.4 million in 2Q17. EBITDA (e) was negative $3.2 million, an improvement of $8.8 million compared to 2Q17. EBITDA benefited from a decrease of $2.6 million in equity compensation expense compared to 2Q17.
Key Financial Results
* Date format is quarter and year in each instance.
“Our transformation continues to take shape. We are pleased that the NA/HME segment realized constant currency net sales growth of 2.3% compared to 2Q17. This is the fourth consecutive quarter of constant currency flat to positive sales growth in this segment, driven by a greater than 10% increase in sales of mobility and seating products. The growth in our mobility and seating product category reflects the competitiveness of our products and our alignment with our provider customers and end users. Operating loss and EBITDA improved compared to 2Q17 benefiting from favorable foreign currency, cost reduction activities implemented in 2017 and reduced restructuring costs partially offset by increased freight costs. Compared to 2Q17, the company's cash flow usage increased by $2.2 million primarily due to higher inventory levels and higher interest payments. We believe our capital structure and balance sheet will support us through the transformation.
As we continue to reshape our business, we are undertaking a mild shift in product mix in Europe, and we expect a slight reduction in Europe revenue through 4Q18 in support of this shift. In NA/HME, we are narrowly focusing now on accelerating respiratory growth and stabilizing IPG where we have good products and will amplify our work with our channel partners to drive growth. As demonstrated in the past, we excel in the areas where we focus our resources. We have a great brand presence, and consumers know our products reflect high quality. The company will continue to emphasize a culture of quality excellence and achievement of its long-term earnings potential,” said Matthew E. Monaghan, chairman, president and chief executive officer.
2Q18 Segment Results
Europe - Constant currency net sales declined compared to 2Q17 driven by all product lines as the company gradually applies its transformation strategy to this segment to focus more on clinically valued, higher-margin products. Compared to 1Q18, constant currency sequential net sales improved 6.0%. Gross margin as a percentage of sales declined slightly due to increased R&D expenditures. Operating income decreased compared to 2Q17 principally due to unfavorable manufacturing variances and increased freight costs related to product transfers associated with facility consolidation, and increased R&D and SG&A costs. These were partially offset by the benefits of foreign currency.
North America/Home Medical Equipment (NA/HME) - Constant currency net sales increased compared to 2Q17 driven largely by increases in sales of mobility and seating products as the company continued to benefit from exiting the injunctive phase of the consent decree. Respiratory product sales declined in stationary concentrators and HomeFill (R) systems compared to 2Q17 partially offset by an increase in portable oxygen concentrators. Compared to 1Q18, constant currency sequential net sales improved 0.3% driven by a significant increase in mobility and seating and lifestyle products offset by lower respiratory product sales. Operating loss decreased compared to 2Q17 primarily related to reduced SG&A, due largely to lower employment costs, and reduced R&D and warranty expense, which was partially offset by increased freight costs.
Institutional Products Group (IPG) - Constant currency net sales decreased compared to 2Q17, principally due to lower bed product sales as a result of a supply disruption that was resolved by the end of 2Q18. Compared to 1Q18, constant currency sequential net sales declined 7.8% attributable to all product lines. Operating income declined compared to 2Q17 principally due to a decline in sales partially offset by reduced warranty and SG&A expense.
Asia/Pacific - Constant currency net sales increased compared to 2Q17 principally driven by increased sales of mobility and seating products. Operating income increased significantly compared to 2Q17 as a result of a net sales increase, reduced R&D expense and favorable manufacturing variances.
The company's cash and cash equivalents balances were $122.4 million and $176.5 million at June 30, 2018 and December 31, 2017, respectively. The expected decrease in cash was the result of normal operations, which included losses in certain areas as we continue to apply our transformation strategy, and seasonal variations in operations.
Free cash flow usage for 2Q18 was $24.6 million compared to usage of $22.4 million in 2Q17. The increase in usage was primarily related to increased working capital related to inventory and higher interest payments of $2.7 million due to the convertible debt issuance in 2Q17. The 2Q18 free cash flow was driven by a net loss, increased inventory and decreased accrued expenses.
The company expanded the size of its Board of Directors and added new directors. In May, Petra Danielsohn-Weil, PhD joined the company's Board of Directors. With more than 30 years of experience in the medical and pharmaceutical fields, Ms. Danielsohn-Weil offers deep industry and international expertise and a wealth of experience in Europe, where the company has significant operations and the majority of its sales. In July, Diana S. Ferguson also joined the Board. Ms. Ferguson has more than 30 years of finance experience in the manufacturing, financial and consumer industries, as well as the public-sector. She will replace a director who served with financial expertise and recently retired. The two new appointments bring the number of directors to a total of nine, eight of whom are considered independent, and reflect director diversity of 67%, based on gender, race and ethnicity.
The company's pursuit of profitable sales growth and cost reductions are expected to drive its longer-term goal of improved operating income and positive EBITDA. As part of the transformation, the company will continue to make significant investments, strategically reduce sales in certain areas, refocus resources away from less accretive activities and evaluate its global infrastructure for opportunities to drive efficiency. The company expects to see improved results in 2018 from actions executed to date and additional actions as it continues to streamline operations, resize and reshape the organization, especially in North America, around its new business mix and size. By executing this strategy and making these operational improvements, the company expects long-term benefits for the company’s stakeholders.
Positive sales growth in mobility and seating products, both year-over-year and sequentially, is a key metric and an indicator of the progress of the transformation of the NA/HME segment. The company expects to increase SG&A investment for the remainder of the year to stimulate growth and brand awareness for its portable oxygen concentrator. Regarding the IPG segment, the company does not anticipate near-term sequential sales growth as it expects its new strategic selling approach to continue to take time to yield results. As noted previously, the company is gradually applying the transformation to the Europe segment, which may continue to reduce the segment's sales throughout the remainder of 2018 as it shifts its product mix toward more clinically valued, higher-margin products.
The company remains positive about the growth potential of its businesses. Results of the mobility and seating and lifestyles product categories already reflect this growth potential. Good products and stable markets in other areas support the transformation we are executing in Europe, IPG and in the respiratory product category. In the near-term, the company anticipates an unfavorable impact on its results due to increases in tariffs and freight costs. The specific impact is not currently estimated as policy and commodity prices are only beginning to be implemented, and management has not estimated its ability to offset any increases with internal actions. SG&A will increase somewhat, especially in NA/HME, as the company undertakes the promotion of certain product lines, including its respiratory products. The company will continue to make capital investments to grow the business. Working capital will expand as the business grows, especially in support of increases in mobility and seating sales, which require substantial working capital and demonstration units to be effective. The company continues to estimate that cash flow in 2018 will be similar to 2017 including increased capital spending. The company believes its cash balances and available borrowing capacity should be sufficient to fund its transformation.
The company will continue to emphasize a culture of quality excellence, profitable sales growth and the achievement of its long-term objectives.
Conference Call and Webcast
As previously announced, the company will provide a conference call and webcast for investors and other interested parties to review its second quarter 2018 financial results on Wednesday, August 8, 2018 at 8:30 AM ET. Those wishing to participate in the live call should dial 888-778-9065, or for international callers 719-325-4865, and enter Conference ID 4528467. A simultaneous webcast of the call will be accessible at https://ctevents.webex.com/ctevents/onstage/g.php?MTID=ec00be1803b709d0ba6861600c5e77f88. A copy of the webcast slide deck will be posted to www.invacare.com/investorrelations prior to the webcast.
A recording of the conference call can be accessed by dialing 888-203-1112 (U.S. and Canada) or 719-457-0820 (international callers) and entering the Conference ID Code 4528467 through August 15, 2018. An archive of the webcast presentation will be posted at www.invacare.com/investorrelations 24 hours after the call.
Upcoming Investor EventsMorgan Stanley Healthcare Conference - September 12, 2018 (New York City) CL King Conference - September 13, 2018 (New York City)
About Invacare Corporation
Invacare Corporation (NYSE: IVC) ("Invacare" or the "company") is a leading manufacturer and distributor in its markets for medical equipment used in non-acute care settings. At its core, the company designs, manufactures, and distributes medical devices that help people to move, breathe, rest and perform essential hygiene. The company provides clinically complex medical device solutions for congenital (e.g., cerebral palsy, muscular dystrophy, spina bifida), acquired (e.g., stroke, spinal cord injury, traumatic brain injury, post-acute recovery, pressure ulcers) and degenerative (e.g., ALS, multiple sclerosis, chronic obstructive pulmonary disease, age related, bariatric) conditions. The company's products are important parts of care for people with a wide range of challenges, from those who are active and involved in work or school each day and may need additional mobility or respiratory support, to those who are cared for in residential care settings, at home and in rehabilitation centers. The company sells its products principally to home medical equipment providers with retail and e-commerce channels, residential care operators, distributors and government health services in North America, Europe and Asia/Pacific. For more information about the company and its products, visit the company's website at www.invacare.com.
This press release contains forward-looking statements within the meaning of the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those that describe future outcomes or expectations that are usually identified by words such as “will,” “should,” “could,” “plan,” “intend,” “expect,” “continue,” “forecast,” “believe,” and “anticipate” and include, for example, any statement made regarding the company's future results. Actual results may differ materially as a result of various risks and uncertainties, including regulatory proceedings or the company's failure to comply with regulatory requirements or receive regulatory clearance or approval for the company's products or operations; adverse effects of regulatory or governmental inspections of company facilities at any time and governmental warning letters or enforcement actions; circumstances or developments that may make the company unable to implement or realize the anticipated benefits, or that may increase the costs, of its current business initiatives; possible adverse effects on the company’s liquidity that may result from delays in the implementation or realization of benefits from its current business initiatives; exchange rate fluctuations; the adverse impacts of new tariffs or increases in commodity prices or freight costs; and those other risks and uncertainties expressed in the cautionary statements and risk factors in the company’s annual report on Form 10-K, quarterly reports on Form 10-Q and other filings with the Securities and Exchange Commission. The company may not be able to predict and may have little or no control over many factors or events that may influence its future results and, except as required by law, shall have no obligation to update any forward-looking statements.
* Net loss per share assuming dilution calculated using weighted average shares outstanding - basic for periods in which there is a loss.
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