Market Overview

Invacare Reports Results for Second Quarter 2018

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Invacare Corporation (NYSE:IVC) ("Invacare" or the "company") today
reported results for the quarter ended June 30, 2018.

Second Quarter 2018 Highlights

  • Reported 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

                 
(in millions USD)   2Q18   2Q17  

$ Change

  % Change
Net Sales   $246.2   $233.5   $12.6   5.4%
Constant Currency Net Sales $232.3 $233.5 $(1.2) (0.5)%
Gross Margin % of Net Sales 27.4% 27.8% -- (40) bps
Gross Profit $67.3 $65.0 $2.3 3.5%
Constant Currency SG&A(f) $70.7 $75.7 $(5.1) (6.7)%
Free Cash Flow $(24.6) $(22.4) $(2.2) (9.6)%
EBITDA   $(3.2)   $(12.0)   $8.8   73.5%
 

* Date format is quarter and year in each instance.

CEO Summary

"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

 
(in millions USD)   Net Sales     Operating Income (Loss)
        Constant    
Reported Currency
2Q18   2Q17   % Change % Change 2Q18 2Q17 % Change
Europe $ 138.9 $ 128.5 8.1 % (2.3 )% $ 5.2 $ 7.1 (26.9 )%
NA/HME 79.9 77.7 2.8 2.3 (8.4 ) (12.4 ) 32.1
IPG 13.7 15.3 (10.6 ) (10.8 ) 1.2 1.5 (21.0 )
Asia/Pacific   13.7   12.0   13.8     13.1       1.6     (0.1 )   1,430.5  
 

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.

Financial Condition

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.

Additional Highlights

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.

Outlook

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 Events

  • Morgan 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.

     
INVACARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF LOSS (UNAUDITED)
 
(In thousands, except per share data) Three Months Ended Six Months Ended
June 30 June 30
2018     2017 2018     2017
Net sales $ 246,152 $ 233,517 $ 483,212 $ 465,240
Cost of products sold 178,806   168,495   349,349   335,073  
Gross Profit 67,346 65,022 133,863 130,167
Selling, general and administrative expenses 73,763 75,721 145,027 148,234
Charges related to restructuring activities 344   4,987   745   8,270  
Operating Loss (6,761 ) (15,686 ) (11,909 ) (26,337 )
Net (gain) loss on convertible debt derivatives (21 ) 1,051 (124 ) 150
Interest expense - net 6,828   4,596   13,541   9,026  
Loss before Income Taxes (13,568 ) (21,333 ) (25,326 ) (35,513 )
Income tax provision 2,975   2,175   5,325   4,775  
Net Loss (16,543 ) (23,508 ) (30,651 ) (40,288 )
 
Net Loss per Share—Basic $ (0.50 ) $ (0.72 ) $ (0.93 ) $ (1.23 )
 
Weighted Average Shares Outstanding—Basic 33,169 32,833 33,040 32,654
 
Net Loss per Share—Assuming Dilution * $ (0.50 ) $ (0.72 ) $ (0.93 ) $ (1.23 )
 
Weighted Average Shares Outstanding—Assuming Dilution 33,996 33,193 33,867 32,947

____________

* 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 Six Months Ended
June 30   June 30
2018   2017 2018   2017
Net loss per share - assuming dilution* $ (0.50 ) $ (0.72 ) $ (0.93 ) $ (1.23 )
Weighted average shares outstanding- assuming dilution 33,169 32,833 33,040 32,654
Net loss (16,543 ) (23,508 ) (30,651 ) (40,288 )
Income tax provision 2,975   2,175   5,325   4,775  

Loss before Income Taxes

(13,568 ) (21,333 ) (25,326 ) (35,513 )
Amortization of discount on convertible debt 2,864 1,702 5,650 3,451
Net (gain) loss on convertible debt derivatives (21 ) 1,051   (124 ) 150  
Adjusted Loss before Income Taxes (10,725 ) (18,580 ) (19,800 ) (31,912 )
Adjusted Income Taxes 2,975   2,175   5,325   4,255  
Adjusted Net Loss(g) $ (13,700 ) $ (20,755 ) $ (25,125 ) $ (36,167 )
 
Weighted Average Shares Outstanding - Assuming Dilution 33,169   32,833   33,040   32,654  
Adjusted Net Loss per Share - Assuming Dilution(c)
*
$ (0.41 ) $ (0.63 ) $ (0.76 ) $ (1.11 )

______

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 Six Months Ended
(In thousands) June 30   June 30
2018     2017 2018     2017
Net Loss $ (16,543 ) $ (23,508 ) $ (30,651 ) $ (40,288 )
Income tax provision 2,975 2,175 5,325 4,775
Interest expense - net 6,828 4,596 13,541 9,026
Net (gain) loss on convertible debt derivatives (21 ) 1,051   (124 ) 150  
Operating Loss (6,761 ) (15,686 ) (11,909 ) (26,337 )
Depreciation and amortization 3,589   3,719   7,700   7,312  
EBITDA(e) $ (3,172 ) $ (11,967 ) $ (4,209 ) $ (19,025 )

_______

"EBITDA" is a non-GAAP financial measure, which is defined at the end
of this release.
EBITDA includes stock-based compensation expense
of $1.2 million and $2.9 million for the three and six months ended
June 30, 2018, respectively, compared to $3.8 million and $4.6 million
for the three and six months ended June 30, 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 $34,164,000
and $67,273,000 for the three and six months ended June 30, 2018,
respectively, compared to $29,659,000 and $60,057,000 for the three and
six months ended June 30, 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 Six Months Ended
(In thousands) June 30 June 30
2018   2017 Change 2018   2017 Change
Revenues from external customers
Europe $ 138,896 $ 128,485 $ 10,411 $ 270,210 $ 247,993 $ 22,217
NA/HME 79,867 77,689 2,178 159,649 161,951 (2,302 )
IPG 13,704 15,320 (1,616 ) 28,591 31,693 (3,102 )
Asia/Pacific 13,685   12,023   1,662   24,762   23,603   1,159  
Consolidated $ 246,152   $ 233,517   $ 12,635   $ 483,212   $ 465,240   $ 17,972  
 
Operating income (loss)
Europe $ 5,171 $ 7,077 $ (1,906 ) $ 11,765 $ 12,177 $ (412 )
NA/HME (8,420 ) (12,395 ) 3,975 (16,558 ) (21,821 ) 5,263
IPG 1,163 1,472 (309 ) 2,761 3,370 (609 )
Asia/Pacific 1,570 (118 ) 1,688 2,542 (548 ) 3,090
All Other (5,901 ) (6,735 ) 834 (11,674 ) (11,245 ) (429 )
Charge related to restructuring activities (344 ) (4,987 ) 4,643   (745 ) (8,270 ) 7,525  
Consolidated operating loss (6,761 ) (15,686 ) 8,925 (11,909 ) (26,337 ) 14,428
Net gain (loss) on convertible debt derivatives 21 (1,051 ) 1,072 124 (150 ) 274
Net Interest expense (6,828 ) (4,596 ) (2,232 ) (13,541 ) (9,026 ) (4,515 )
Loss before income taxes $ (13,568 ) $ (21,333 ) $ 7,765   $ (25,326 ) $ (35,513 ) $ 10,187  
 

__________

"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 June 30, 2018 compared to June 30, 2017:

   
Foreign Exchange
Reported Translation Impact Constant Currency
Europe 8.1 % 10.4 % (2.3 )%
NA/HME 2.8 0.5 2.3
IPG (10.6 ) 0.2 (10.8 )
Asia/Pacific 13.8 0.7 13.1
Consolidated 5.4 5.9 (0.5 )
 

Six months ended June 30, 2018 compared to June 30, 2017:

   
Foreign Exchange
Reported Translation Impact Constant Currency
Europe 9.0 % 11.4 % (2.4 )%
NA/HME (1.4 ) 0.4 (1.8 )
IPG (9.8 ) 0.2 (10.0 )
Asia/Pacific 4.9 1.9 3.0
Consolidated 3.9 6.4 (2.5 )
 

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

The following tables provide net sales at reported rates for the
quarters ended June 30, 2018 and March 31, 2018, respectively, and net
sales for the quarter ended June 30, 2018 as translated at the foreign
exchange rates for the quarter ended March 31, 2018 with each then
compared to each other (constant currency sequential net sales(b)).
The company began this disclosure in 2Q17 to illustrate the effect of
its transformation on its segments and continues to do so while the
transformation continues.

           
2Q18 at
Reported Foreign 2Q18 at 1Q18 at 1Q18
Foreign Exchange 1Q18 Foreign Foreign
Exchange Translation Exchange Exchange Sequential Sequential
Rates Impact Rates Rates Growth $ Growth %
Europe $ 138,896 $ 197 $ 139,093 $ 131,251 $ 7,842 6.0 %
NA/HME 79,867 186 80,053 79,794 259 0.3
IPG 13,704 15 13,719 14,887 (1,168 ) (7.8 )
Asia Pacific 13,685   443   14,128   11,066   3,062   27.7  
Consolidated $ 246,152   $ 841   $ 246,993   $ 236,998   $ 9,995   4.2 %
 

   
INVACARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 
June 30, December 31,
(In thousands) 2018 2017
 
Assets
Current Assets
Cash and cash equivalents $ 122,398 $ 176,528
Trade receivables, net 124,099 125,615
Installment receivables, net 1,266 1,334
Inventories, net 136,606 121,933
Other current assets 32,841   31,504
Total Current Assets 417,210 456,914
Other Assets 113,139 97,576
Intangibles 28,820 30,244
Property and Equipment, net 76,690 80,016
Goodwill 394,051   401,283
Total Assets $ 1,029,910   $ 1,066,033
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $ 92,678 $ 90,566
Accrued expenses 101,492 118,697
Current taxes payable 2,914 6,761
Short-term debt and current maturities of long-term obligations 1,676   2,040
Total Current Liabilities 198,760 218,064
Long-Term Debt 247,326 241,405
Other Long-Term Obligations 198,644 183,270
Shareholders' Equity 385,180   423,294
Total Liabilities and Shareholders' Equity $ 1,029,910   $ 1,066,033
 
   
INVACARE CORPORATION AND SUBSIDIARIES
RECONCILIATION FROM NET CASH USED BY

OPERATING ACTIVITIES TO FREE CASH FLOW(d)

 
Three Months Ended Six Months Ended
(In thousands) June 30 June 30
2018   2017 2018   2017
Net cash used by operating activities $ (22,447 ) $ (20,138 ) $ (47,098 ) $ (50,468 )
Plus:
Sales of property and equipment 27 180 37 190
Less:
Purchases of property and equipment (2,162 ) (2,470 ) (4,227 ) (5,504 )
Free Cash Flow(d) $ (24,582 ) $ (22,428 ) $ (51,288 ) $ (55,782 )
 

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 and six months ended
June 30, 2018 and June 30, 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, 2018. A table accompanying this
release compares net sales for the three months ended June 30, 2018 and
March 31, 2018 to each other with both periods translated at the foreign
exchange rates for the three months ended March 31, 2018. 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(g) 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 of Net Loss Per Share to
Adjusted Net Loss per Share" 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
from Net Cash Used by Operating Activities to Free Cash Flow" 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 of Net Loss to
EBITDA" 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
($2.9 million and $5.7 million pre-tax for the three and six months
ended June 30, 2018, respectively, compared to $1.7 million and $3.5
million for the three and six months ended June 30, 2017, respectively),
and net gain (loss) on convertible debt derivatives (net gains of $0.0
million and $0.1 million for the three and six months ended June 30,
2018, respectively, compared to net losses of $1.1 million and $0.2
million for the three and six months ended June 30, 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 of Net Loss per Share to Adjusted Net Loss Per
Share" table included after the Condensed Consolidated Statement of
Operations included in this press release.

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