Market Overview

Invacare Reports Results for First Quarter 2018

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Invacare Corporation (NYSE:IVC) ("Invacare" or the "company") today
reported results for the quarter ended March 31, 2018.

Highlights

  • Reported net sales increased 2.3% to $237.1 million while constant
    currency net sales(a) decreased 4.4% compared to 1Q17*.
  • Constant currency sequential net sales(b) decreased 6.6%
    compared to 4Q17. Constant currency sequential net sales increased in
    the North America/Home Medical Equipment ("NA/HME") and Institutional
    Products ("IPG") segments but offset by declines in the Europe and
    Asia/Pacific segments. The Europe segment has historically been
    impacted by seasonality with stronger sales in the second half versus
    the first half of the year.
  • Gross margin as a percentage of net sales was unchanged at 28.1%
    compared to 1Q17 primarily as a result of favorable manufacturing
    costs, including favorable impact from foreign currency, and reduced
    R&D expenses offset by increased freight costs, principally to support
    fulfillment of the order backlog carried over from 4Q17.
  • Operating loss was $5.1 million, an improvement of $5.5 million
    compared to 1Q17, as operating profit increased for most of the
    business segments and restructuring costs decreased.
  • GAAP loss per share was $0.43, compared to loss per share of $0.52 in
    1Q17, and adjusted net loss per share(c) was $0.35 versus
    loss per share of $0.47 in 1Q17.
  • Free cash flow(d) usage was $26.7 million compared to usage
    of $33.4 million in 1Q17.
  • EBITDA(e) was negative $1.0 million, an improvement of $6.0
    million compared to 1Q17. EBITDA in 1Q18 included an increase of $0.9
    million related to equity compensation expense.
  • Results in 1Q18 were not materially affected by the 4Q17 U.S. tax law
    change principally due to the company's domestic losses and valuation
    reserves.

Key Financial Results

                 
(in millions USD)   1Q18   1Q17  

$ Change

  % Change
Net Sales   $237.1   $231.7   $5.3   2.3%
Constant Currency Net Sales $221.4 $231.7 $(10.3) (4.4)%
Gross Margin % of Net Sales 28.1% 28.1% 0 bps
Gross Profit $66.5 $65.1 $1.4 2.2%
Constant Currency SG&A(f) $67.7 $72.5 $(4.8) (6.6)%
Free Cash Flow $(26.7) $(33.4) $6.6 19.9%
EBITDA   $(1.0)   $(7.1)   $6.0   85.3%
* Date format is quarter and year in each instance.
 

CEO Summary

"In the first quarter, consolidated constant currency sequential net
sales declined 6.6% compared to the fourth quarter 2017, which was
largely expected as the company's sales are historically stronger in the
second half of the year, especially in the Europe segment. Importantly,
both the NA/HME and IPG segments achieved constant currency sequential
net sales growth, an indicator of the progress of our transformation.
Operating loss and EBITDA improved as compared to the first quarter last
year with benefit from favorable foreign currency and cost reduction
activities implemented in 2017. During the quarter, the company's
continued focus on cash resulted in a $6.6 million improvement in free
cash flow and $6.0 million improvement in EBITDA compared to the first
quarter 2017 principally driven by a lower net loss. The company
continued to prioritize its emphasis on a culture of quality excellence
and achieving improved earnings," said Matthew E. Monaghan, chairman,
president and chief executive officer.

1Q18 Segment Results

               
(in millions USD)   Net Sales     Operating Income (Loss)
        Constant    
Reported Currency
1Q18   1Q17   % Change   % Change 1Q18     1Q17     % Change
Europe $ 131.3 $ 119.5 9.9 % (2.6 )% $ 6.6 $ 5.1 29.3 %
NA/HME 79.8 84.3 (5.3 ) (5.7 ) (8.1 ) (9.4 ) 13.7
IPG 14.9 16.4 (9.1 ) (9.3 ) 1.6 1.9 (15.8 )
Asia/Pacific   11.1   11.6   (4.3 )   (7.5 )     1.0     (0.4 )   326.0  
 

Europe - Compared to 1Q17, the decline in constant
currency net sales was driven by lifestyle and respiratory products and,
to a lesser extent, mobility and seating products as the company
gradually applies its transformation strategy to this segment. Operating
income increased compared to 1Q17 principally due to favorable impact
from foreign currency and sales mix partially offset by increased
freight costs and sales declines.

North America/Home Medical Equipment (NA/HME) - Constant
currency net sales decreased driven largely by respiratory and lifestyle
products partially offset by increases in mobility and seating products
compared to 1Q17. The decline in sales was also impacted by reduced
sales in China as result of the closure of one of the company's Suzhou,
China facilities in 3Q17. Compared to 4Q17, constant currency sequential
net sales improved 0.5% driven by respiratory products. Operating loss
decreased compared to 1Q17 primarily related to reduced SG&A expense and
R&D expense, primarily employment costs, partially offset by sales
decline, unfavorable sales mix and increased freight costs.

Institutional Products Group (IPG) - Constant currency net
sales decreased compared to 1Q17, principally due to case goods, bed
products and interior design projects. Compared to 4Q17, constant
currency sequential net sales improved 7.6% driven by interior design
projects and DME products. Operating income declined compared to 1Q17
principally due to a decline in sales, partially offset by reduced SG&A
expense.

Asia/Pacific - Constant currency net sales decreased
compared to 1Q17 in institutional beds and respiratory products.
Operating income increased significantly compared to 1Q17 as a result of
favorable sales mix and reduced R&D expense and manufacturing costs.

Additional highlights

  • In January, the company's independent auditor completed its first
    semi-annual inspection of the Corporate and Taylor Street facilities
    in accordance with the company's FDA consent decree. The auditor
    concluded the company continues to operate these facilities in
    substantial compliance with FDA requirements.
  • In April, FDA conducted a follow-up inspection of the company's Alber
    facility in Germany following the corrections of issues raised in the
    previously disclosed 2017 warning letter. There were no observations
    from this inspection and Invacare anticipates closure of the warning
    letter in due course. Sales restrictions from the warning letter were
    lifted in January 2018.

Outlook

As part of the company's 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. Phase One investments are providing returns. The company
expects to see improved results in 2018 with Phase Two actions
continuing as the company 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.

As a result of anticipated commercial effectiveness, the company expects
increased working capital, which, if realized, would support investments
for growth, especially growth of NA/HME mobility and seating products.
This would include investments in demonstration units, increased SG&A to
support increased sales growth and the working capital needed to support
an extended quote-to-cash process for power wheelchairs. Also, the
company expects to make additional restructuring and capital investments
as it continues to reshape the business over the transformation period.
Accordingly, the company anticipates its cash flow usage for 2018 will
be similar to the cash used in 2017, including consideration of
seasonality of cash flow usage during the year.

As noted previously, the company is gradually applying the
transformation to the Europe segment, which may continue to reduce the
segment's sales as it begins to shift its product mix toward more
clinically valued, higher-margin products. Regarding the IPG segment,
the company does not anticipate sequential sales growth in the
subsequent quarters of 2018 to be as strong as realized in 1Q18 as the
company expects its new strategic selling approach to continue to take
time to yield growth.

In its pursuit of increased shareholder value, the company continues to
prioritize its emphasis on a culture of quality excellence and achieving
its long-term earnings potential.

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 first
quarter 2018 financial results on Tuesday, May 8, 2018 at 8:30 AM ET.
Those wishing to participate in the live call should dial 800-289-0498,
or for international callers 719-325-4831, and enter Conference ID
5307615. A simultaneous webcast of the call will be accessible at https://calltower.adobeconnect.com/invacare1q2018/event/registration.html.
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 5307615 through May 15, 2018. An
archive of the webcast presentation will be posted at www.invacare.com/investorrelations
24 hours after the call.

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, elderly, bariatric)
ailments. 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
Invacare'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; 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.

 
INVACARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF LOSS (UNAUDITED)
 
(In thousands, except per share data) Three Months Ended
March 31
2018   2017
Net sales $ 237,060 $ 231,723
Cost of products sold 170,543   166,578  
Gross Profit 66,517 65,145
Selling, general and administrative expenses 71,264 72,513
Charges related to restructuring activities 401   3,283  
Operating Loss (5,148 ) (10,651 )
Net gain on convertible debt derivatives (103 ) (901 )
Interest expense - net 6,713   4,430  
Loss before Income Taxes (11,758 ) (14,180 )
Income tax provision 2,350   2,600  
Net Loss (14,108 ) (16,780 )
 
Net Loss per Share—Basic $ (0.43 ) $ (0.52 )
 
Weighted Average Shares Outstanding—Basic 32,911 32,475
 
Net Loss per Share—Assuming Dilution * $ (0.43 ) $ (0.52 )
 
Weighted Average Shares Outstanding—Assuming Dilution 33,799 32,704

__________

* Net loss per share assuming dilution calculated using weighted
average shares outstanding - basic for periods in which there is a
loss.
 
 
INVACARE CORPORATION AND SUBSIDIARIES
RECONCILIATION OF NET LOSS PER SHARE

TO ADJUSTED NET LOSS PER SHARE(c)

 
(In thousands, except per share data) Three Months Ended
March 31
2018   2017
Net loss per share - assuming dilution* $ (0.43 ) $ (0.52 )
Weighted average shares outstanding- assuming dilution 32,911 32,475
Net loss (14,108 ) (16,780 )
Income tax provision 2,350   2,600  
Loss before Income Taxes (11,758 ) (14,180 )
Amortization of discount on convertible debt 2,786 1,749
Net gain on convertible debt derivatives (103 ) (901 )
Adjusted Loss before Income Taxes (9,075 ) (13,332 )
Adjusted Income Taxes 2,350   2,080  

Adjusted Net Loss(g)

$ (11,425 ) $ (15,412 )
 
Weighted Average Shares Outstanding - Assuming Dilution 32,911   32,475  
Adjusted Net Loss per Share - Assuming Dilution(c)
*
$ (0.35 ) $ (0.47 )
 

Adjusted net loss per share (Adjusted EPS) and adjusted net
loss are non-GAAP financial measures, which are defined at the end
of this release.

 

*Net loss per share assuming dilution and adjusted net loss per
share(c) assuming dilution calculated using weighted
average shares outstanding - basic for periods in which there is a
loss.

 
 
INVACARE CORPORATION AND SUBSIDIARIES

RECONCILIATION OF NET LOSS TO EBITDA(e)

 
Three Months Ended
(In thousands) March 31
2018   2017
Net Loss $ (14,108 ) $ (16,780 )
Income tax provision 2,350 2,600
Interest expense - net 6,713 4,430
Net gain on convertible debt derivatives (103 ) (901 )
Operating Loss (5,148 ) (10,651 )
Depreciation and amortization 4,111   3,593  
EBITDA(e) $ (1,037 ) $ (7,058 )

"EBITDA" is a non-GAAP financial measure, which is defined at
the end of this release. EBITDA includes stock based compensation
expense of $1.8 million and $0.8 million for the three months
ended March 31, 2018 and 2017, respectively.

 

INVACARE CORPORATION AND SUBSIDIARIES
BUSINESS SEGMENTS
(UNAUDITED)

The company operates in four primary business segments: North
America/Home Medical Equipment (NA/HME), Institutional Products Group
(IPG), Europe and Asia/Pacific. The four reportable segments represent
operating groups, which offer products to different geographic
regions. Intersegment revenue for reportable segments was $33,109,000
for the three months ended March 31, 2018, respectively, compared to
$30,398,000 for the three months ended March 31, 2017, respectively. The
accounting principles applied at the operating segment level are
generally the same as those applied at the consolidated financial
statement level. Intersegment sales are eliminated in consolidation.

The information by segment is as follows:

   
Three Months Ended
(In thousands) March 31
2018   2017 Change
Revenues from external customers
Europe $ 131,314 $ 119,508 $ 11,806
NA/HME 79,782 84,262 (4,480 )
IPG 14,887 16,373 (1,486 )
Asia/Pacific 11,077   11,580   (503 )
Consolidated $ 237,060   $ 231,723   $ 5,337  
 
Operating income (loss)
Europe $ 6,594 $ 5,100 $ 1,494
NA/HME (8,138 ) (9,426 ) 1,288
IPG 1,598 1,898 (300 )
Asia/Pacific 972 (430 ) 1,402
All Other (5,773 ) (4,510 ) (1,263 )
Charge related to restructuring activities (401 ) (3,283 ) 2,882  
Consolidated operating loss (5,148 ) (10,651 ) 5,503
Net gain on convertible debt derivatives 103 901 (798 )
Net Interest expense (6,713 ) (4,430 ) (2,283 )
Loss before income taxes $ (11,758 ) $ (14,180 ) $ 2,422  
 
__________
"All Other" consists of unallocated corporate selling, general and
administrative expenses and intercompany profits, which do not meet
the quantitative criteria for determining reportable segments.
 

INVACARE CORPORATION AND SUBSIDIARIES
BUSINESS SEGMENT
NET SALES (UNAUDITED)

The following table provide net sales change as reported and as adjusted
to exclude the impact of foreign exchange translation (constant currency
net sales(a)). The current year constant currency net sales
are translated using the prior year's foreign exchange rates. These
amounts are then compared to the prior year's sales to calculate the
constant currency net sales change.

Three months ended March 31, 2018 compared to March 31, 2017:

    Foreign Exchange  
Reported Translation Impact Constant Currency
Europe 9.9 % 12.5 % (2.6 )%
NA/HME (5.3 ) 0.4 (5.7 )
IPG (9.1 ) 0.2 (9.3 )
Asia/Pacific (4.3 ) 3.2 (7.5 )
Consolidated 2.3 6.7 (4.4 )
 

INVACARE CORPORATION AND SUBSIDIARIES
BUSINESS SEGMENT
SEQUENTIAL NET SALES (UNAUDITED)

The following tables provide net sales at reported rates for the
quarters ended March 31, 2018 and December 31, 2017, respectively, and
net sales for the quarters ended March 31, 2018 and December 31, 2017,
respectively, as translated at the foreign exchange rates for the
quarter ended March 31, 2017 with each then compared to each other
(constant currency sequential net sales(b)). The company
began this disclosure in 1Q17 to illustrate the effect of its
transformation on its segments and continues to do so while the
transformation continues.

           
1Q18 at
Reported Foreign 1Q18 at 4Q17 at 1Q17
Foreign Exchange 1Q17 Foreign Foreign
Exchange Translation Exchange Exchange Sequential Sequential
Rates Impact Rates Rates Growth $ Growth %
Europe $ 131,314 $ (14,870 ) $ 116,444 $ 131,053 $ (14,609 ) (11.1 )%
NA/HME 79,782 (326 ) 79,456 79,050 406 0.5
IPG 14,887 (47 ) 14,840 13,789 1,051 7.6
Asia Pacific 11,077   (359 ) 10,718   13,188   (2,470 ) (18.7 )
Consolidated $ 237,060   $ (15,602 ) $ 221,458   $ 237,080   $ (15,622 ) (6.6 )%
 
4Q17 at
Reported Foreign 4Q17 at
Foreign Exchange 1Q17 Foreign
Exchange Translation Exchange
Rates Impact Rates
Europe $ 144,052 $ (12,999 ) $ 131,053
NA/HME 79,351 (301 ) 79,050
IPG 13,804 (15 ) 13,789
Asia Pacific 13,144   44   13,188  
Consolidated $ 250,351   $ (13,271 ) $ 237,080  
 
   
INVACARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 
March 31, December 31,
(In thousands) 2018 2017
 
Assets
Current Assets
Cash and cash equivalents $ 150,618 $ 176,528
Trade receivables, net 127,370 125,615
Installment receivables, net 1,281 1,334
Inventories, net 132,038 121,933
Other current assets 33,966   31,504
Total Current Assets 445,273 456,914
Other Assets 101,964 97,576
Intangibles 30,387 30,244
Property and Equipment, net 79,367 80,016
Goodwill 410,291   401,283
Total Assets $ 1,067,282   $ 1,066,033
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $ 94,284 $ 90,566
Accrued expenses 111,650 118,697
Current taxes payable 4,631 6,761
Short-term debt and current maturities of long-term obligations 1,775   2,040
Total Current Liabilities 212,340 218,064
Long-Term Debt 244,366 241,405
Other Long-Term Obligations 187,904 183,270
Shareholders' Equity 422,672   423,294
Total Liabilities and Shareholders' Equity $ 1,067,282   $ 1,066,033
 
 
INVACARE CORPORATION AND SUBSIDIARIES
RECONCILIATION FROM NET CASH USED BY

OPERATING ACTIVITIES TO FREE CASH FLOW(d)

 
Three Months Ended
(In thousands) March 31
2018   2017
Net cash used by operating activities $ (24,651 ) $ (30,330 )
Plus:
Sales of property and equipment 10 10
Less:
Purchases of property and equipment (2,065 ) (3,034 )
Free Cash Flow(d) $ (26,706 ) $ (33,354 )
 

Definitions of Non-GAAP Financial Measures

(a) As used throughout this document, "constant currency net
sales" is a non-GAAP financial measure, which is defined as net sales
excluding the impact of foreign currency translation. The current year's
functional constant currency net sales are translated using the prior
year's foreign exchange rates. These amounts are then compared to the
prior year's sales to calculate the constant currency net sales change.
A table accompanying this release compares net sales as reported and net
sales excluding the effects of foreign exchange translation by segment
and for the consolidated company for the three months ended March 31,
2018 and March 31, 2017, respectively. The company believes that this
financial measure provides meaningful information for evaluating the
core operating performance of the company. This financial measure is
reconciled to the related GAAP financial measures in the "Business
Segment Net Sales" table included in this press release.

(b) As used throughout this document, "constant currency
sequential net sales" is a non-GAAP financial measure in which a given
quarter's net sales are compared to the most recent prior quarter's net
sales with each quarter's net sales translated at the foreign exchange
rates for the quarter ended March 31, 2017. A table accompanying this
release compares net sales for the three months ended March 31, 2018 and
December 31, 2017 to each other with both periods translated at the
foreign exchange rates for the three months ended March 31, 2017. The
company believes that this financial measure provides meaningful
information for evaluating the core operating performance of the
company. This financial measure is reconciled to the related GAAP
financial measures in the "Business Segment Sequential Net Sales" table
included in this press release.

(c) As used throughout this document, "adjusted net loss per
share" ("Adjusted EPS") is a non-GAAP financial measure, which is
defined as adjusted net loss(f) divided by weighted average
shares outstanding, assuming dilution. It should be noted that the
company's definition of Adjusted EPS may not be comparable to similar
measures disclosed by other companies because not all companies and
analysts calculate Adjusted EPS in the same manner. The company believes
that its exclusion adjustments are generally recognized by the industry
in which it operates as relevant in computing Adjusted EPS as a
supplementary non-GAAP financial measure used by financial analysts and
others in the company's industry to meaningfully evaluate operating
performance. This financial measure is reconciled to the related GAAP
financial measure in the "Reconciliation" table located after the
Condensed Consolidated Statement of Operations included in this press
release.

(d) As used throughout this document, "free cash flow" is a
non-GAAP financial measure, which is defined as net cash used by
operating activities less purchases of property and equipment plus
proceeds from sales of property and equipment. Management believes that
this financial measure provides meaningful information for evaluating
the overall financial performance of the company and its ability to
repay debt or make future investments. This financial measure is
reconciled to the related GAAP financial measure in the "Reconciliation"
table located after the Condensed Consolidated Balance Sheets included
in this press release.

(e) As used throughout this document, "Earnings Before
Interest Taxes Depreciation and Amortization" ("EBITDA") is a non-GAAP
financial measure, which is defined as net loss plus: income taxes,
interest expense-net, net gain or loss on convertible debt derivatives
and depreciation and amortization. The company believes that this
financial measure provides meaningful information which is used by
financial analysts and others in the company's industry to evaluate the
performance of the company. This financial measure is reconciled to the
related GAAP financial measure in the "Reconciliation" table included in
this press release.

(f) "Constant Currency SG&A" is a non-GAAP financial measure,
which is defined as SG&A expense excluding the impact of foreign
currency translation. The current period's functional constant currency
SG&A expenses are translated using the prior year's foreign exchange
rates. These amounts are then compared to the prior year's SG&A expenses
to calculate the constant currency SG&A expenses change.

(g) As used throughout this document, "adjusted net loss" is
a non-GAAP financial measure, which is defined as adjusted net loss
before income taxes net of adjusted income taxes. Adjusted net loss
before income taxes is computed as the net loss excluding the
amortization of convertible debt discounts recorded in interest expense
($2.8 million and $1.7 million pre-tax for the three months ended
March 31, 2018 and March 31, 2017, respectively), and net (loss) gain on
convertible debt derivatives (net gains of $0.1 million and $0.9 million
for the three months ended March 31, 2018 and March 31, 2017,
respectively). Adjusted income taxes are computed as taxes as calculated
for GAAP then adjusted for an expense or benefit at the statutory rate
related to pretax adjustments related to locations without a valuation
allowance, the exclusion of uncertain tax liabilities deemed not related
to current operations or the exclusion of taxes related to nonrecurring
sales of non-inventory product or entities on an intercompany
basis. (Note: The U.S. is in a full valuation allowance and accordingly,
no tax expense adjustments are appropriate related to U.S. pre-tax
adjustments.) This financial measure is reconciled to the related GAAP
financial measure in the "Reconciliation" table included after the
Condensed Consolidated Statement of Operations included in this press
release.

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