Achieved sequential improvement in
profitability and free cash flow
Invacare Corporation (NYSE: IVC) ("Invacare" or the "company")
today reported results for the quarter ended June 30, 2022.
Executive Summary
Reflecting on the quarter, Matt Monaghan, chairman, president,
and chief executive officer, said "In 2Q22, we achieved sequential
revenue growth of 4.7% in mobility & seating products driven by
increased adoption of our compelling product portfolio. We continue
to experience elevated backlog across all product categories and
regions, and see strong demand in mobility & seating and
lifestyle products. We are working diligently to increase output
and convert order backlog into sales.
We continue to make good progress on our business transformation
initiative as demonstrated by sequential improvement in gross
margin and lower SG&A expense. The sequential improvement in
gross margin was driven by increased price effectiveness and
favorable product mix. Importantly, as guided, we achieved
sequential improvement in Adjusted EBITDA and free cash flow even
as we endured supply chain challenges and foreign exchange
headwinds.
To further accelerate our business evolution and growth
strategy, we are pleased to have secured additional capital in July
which provides increased liquidity and flexibility. We expect this
strategic funding will enable us to more efficiently address our
elevated backlog and better serve customer demand. We look forward
to providing updates in the coming quarters on additional
transformative actions intended to drive increased profitability
and enhance shareholder value."
Key Metrics
- Reported net sales were $189.0 million, a decrease of 16.3% and
constant currency net sales(a) decreased 10.7%, compared to the
2Q21.
- Gross margin was 25.4%, an increase of 160 basis points on a
sequential basis and a decrease of 150 basis points compared to
2Q21.
- SG&A expense of $58.6 million decreased 8.1%, and constant
currency SG&A(b) decreased 3.8% compared to 2Q21 primarily
attributable to lower employment costs.
- Operating loss was $14.8 million compared to a loss of $3.5
million in 2Q21; improvement of $1.8 million sequentially.
- Adjusted EBITDA(c) loss was $4.8 million, compared to positive
$5.5 million in 2Q21; improvement of $3.8 million
sequentially.
- Free cash flow(d) generated was $0.1 million, an improvement of
$29.9 million sequentially and improved $27.3 million from
2Q21.
Commenting on the company's financial results, Kathy Leneghan,
senior vice president and chief financial officer stated, "We
achieved significant improvement in free cash flow compared to 2Q21
and sequentially as we diligently managed our working capital
driving improved cash conversion including lower accounts
receivable and inventory levels. At the same time, our new credit
facility increases our financial flexibility and provides
additional liquidity to address near-term supply chain challenges
and accelerate our transformation initiatives. In addition, the
convertible debt exchange results in both debt discount recapture
and a path for future debt reduction."
2Q22 Segment Results versus 2Q21
(in millions USD)
Net Sales
Operating Income
(Loss)
2Q22
2Q21
Reported %
Change
Constant Currency %
Change
2Q22
2Q21
% Change
Europe
$
112.8
$
121.3
(7.0
)%
2.8
%
$
3.5
$
5.0
(30.1
)%
North America
68.7
96.2
(28.6
)
(28.4
)
(6.3
)
1.6
(494.0
)
All Other
7.5
8.3
(9.5
)
(1.8
)
(7.9
)
(9.5
)
17.5
The company continues to implement additional transformative
actions to improve business results. As these actions increase in
effectiveness, the company expects to drive sequential improvement
each quarter throughout the remainder of 2022.
At a segment level, reported net sales in Europe declined due to
unfavorable foreign exchange while constant currency net sales
increased driven by sales of respiratory and mobility & seating
products. In North America, revenues declined due primarily to
lower sales of respiratory products. Sales in the Asia Pacific
region, reported in All Other, declined as growth in mobility &
seating and lifestyle products was more than offset by lower sales
of respiratory products. Sequentially, constant currency net sales
of mobility & seating products grew across all segments.
Gross margin improved by 160 basis points sequentially driven by
the benefit of pricing actions and favorable product mix. Gross
profit was flat sequentially on lower revenues and was also
negatively impacted by $1.5 million of unfavorable foreign currency
translation.
SG&A constant currency expense decreased primarily
attributable to lower employment costs, including the benefit of
previously announced restructuring actions. The current quarter
includes $2.7 million of IT expenses being classified as operating
costs as a result of a temporary pause in the ERP roll-out, similar
to 1Q22, as the company continues to focus on restructuring
actions. Previously, these IT costs were classified as capital
expenditures and were included in All Other.
As previously disclosed, the company incurred $4.2 million of
restructuring expense during 2Q22 related to severance and other
costs as compared to $0.5 million in 2Q21. The costs were incurred
in both the Europe and North America segments. Benefits from the
restructuring actions are expected to be realized in the 2H22.
Second Half 2022 Update
The benefit of additional liquidity available to the business is
expected to improve access to components and support 2H22
improvement in net sales, but this benefit is not anticipated to
have a meaningful impact until later half in the year. For 2H22,
the company anticipates an improvement in Adjusted EBITDA as
compared to 1H22 driven by gross profit improvement with increased
effectiveness of pricing actions, and restructuring benefits
partially offset by continued higher input costs. As anticipated,
demand for respiratory products is expected to lessen in the next
several quarters given less COVID-related demand.
Given the continuing supply chain challenges, the company has
suspended its full year 2022 financial guidance. The company will
provide updates to the market as the year progresses on the planned
deployment of recently announced funding, and as circumstances
evolve.
The company continues to focus on its transformation plan,
revenue growth for clinically relevant product categories, and
effectiveness of pricing actions to drive significant improvement
in financial performance to deliver enhanced long-term shareholder
value.
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 2022 financial results on Tuesday, August
9, 2022 at 8:30 AM ET. Those wishing to participate via webcast can
access the event at
https://event.on24.com/wcc/r/3824622/92E8BCD6867EC596FFDEE810519F56D2.
Those wishing to participate via telephone can dial 844-200-6205,
or for international callers 929-526-1599, and enter Conference ID
491866. A copy of the webcast slide deck will be posted to
https://global.invacare.com/investor-relations prior to the webcast
and an achieve will be posted 24 hours after the call. A recording
of the conference call can be accessed by dialing 929-458-6194 and
entering the Conference ID Code 100258, through August 23,
2022.
Upcoming Investor Events
- September 14, 2022 - Morgan Stanley 20th Annual Global
Healthcare Conference (New York, NY)
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 (COPD), 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, statements
related to the company’s ability to address on-going supply chain
challenges; sales and free cash flow trends; the impact of
contingency plans and cost containment actions; the company’s
liquidity and working capital expectations; the company’s future
financial results; and similar statements. Actual results and
events may differ significantly from those expressed or anticipated
as a result of various risks and uncertainties, including the
availability and cost to the company of needed products, components
or raw materials from the company's suppliers, including delivery
delays and production interruptions from pandemic-related supply
chain challenges and supplier delivery holds resulting from past
due payables; the duration and scope of the COVID-19 pandemic, the
pace of resumption of access to healthcare, including clinics and
elective care, and loosening of public health restrictions, or any
reimposed restrictions on access to healthcare or tightening of
public health restrictions, which could impact the demand for the
company’s products; global shortages in, or increasing costs for,
transportation and logistics services and capacity; actions that
governments, businesses and individuals take in response to the
pandemic, including mandatory business closures and restrictions on
onsite commercial interactions; the impact of the pandemic or
political or geopolitical crises, such as Russia's invasion of
Ukraine, and actions taken in response, on global and regional
economies and economic activity; the pace of recovery when the
COVID-19 pandemic subsides; general economic uncertainty in key
global markets and a worsening of global economic conditions or low
levels of economic growth, including negative conditions
attributable to inflationary economic conditions; the effects of
steps the company has taken or will take to reduce operating costs;
the ability of the company to sustain profitable sales growth,
achieve anticipated improvements in segment operating performance,
convert high inventory levels to cash or reduce its costs; lack of
market acceptance of the company's new product innovations;
potential adverse effects of revised product pricing and/or product
surcharges on revenues or the demand for the company's products;
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 and planned business initiatives, in
particular the key elements of its growth plans, such as its new
product introductions, commercialization plans, additional
investments in demonstration equipment, product distribution
strategy in Europe, supply chain actions and global information
technology outsourcing and ERP implementation activities; possible
adverse effects on the company's liquidity, including (i) the
company's ability to address future debt maturities or other
obligations, including additional debt that may be incurred in the
future or (ii) the company's ability to access the remaining
portion of the financing under the July 2022 financing transactions
(as discussed in the notes to the condensed consolidated financial
statements) in the event of a failure to satisfy one or more of the
applicable closing conditions; increases in interest rates or the
costs of borrowing; potential limitations on the company’s business
activities from obligations in the company’s debt agreements;
adverse changes in government and third-party payor reimbursement
levels and practices; decreased availability or increased costs of
materials which could increase the company's cost of producing or
acquiring the company's products, including the adverse impacts of
tariffs and increases in commodity costs or freight costs;
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 the company's facilities
at any time and governmental enforcement actions; exchange rate
fluctuations, particularly in light of the relative importance of
the company's foreign operations to its overall financial
performance; 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 INCOME (LOSS) - (UNAUDITED)
(In thousands, except per share data)
Three Months Ended
Six Months Ended
June 30
June 30
2022
2021
2022
2021
Net sales
$
189,017
$
225,864
$
390,005
$
422,066
Cost of products sold
141,035
165,046
294,294
306,610
Gross Profit
47,982
60,818
95,711
115,456
Selling, general and administrative
expenses
58,623
63,765
119,187
122,586
Charges related to restructuring
activities
4,153
547
7,943
2,099
Operating Loss
(14,794
)
(3,494
)
(31,419
)
(9,229
)
Loss on debt extinguishment including debt
finance charges and fees
—
—
—
709
Interest expense - net
6,229
6,084
12,481
11,814
Loss Before Income Taxes
(21,023
)
(9,578
)
(43,900
)
(21,752
)
Income tax provision
920
1,120
2,240
2,990
Net Loss
(21,943
)
(10,698
)
(46,140
)
(24,742
)
Net Loss per Share—Basic
$
(0.62
)
$
(0.31
)
$
(1.31
)
$
(0.71
)
Weighted Average Shares
Outstanding—Basic
35,634
34,969
35,340
34,732
Net Loss per Share—Assuming Dilution
*
$
(0.62
)
$
(0.31
)
$
(1.31
)
$
(0.71
)
Weighted Average Shares
Outstanding—Assuming Dilution
35,995
35,620
35,714
35,450
__________
* 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 INCOME
(LOSS) TO ADJUSTED EBITDA(c)
Three Months Ended
Six Months Ended
(In thousands)
June 30
June 30
2022
2021
2022
2021
Net Loss
$
(21,943
)
$
(10,698
)
$
(46,140
)
$
(24,742
)
Income tax provision
920
1,120
2,240
2,990
Interest expense - net
6,229
6,084
12,481
11,814
Loss on debt extinguishment including debt
finance charges and fees
—
—
—
709
Operating Loss
(14,794
)
(3,494
)
(31,419
)
(9,229
)
Depreciation and amortization
3,906
4,185
7,848
8,264
EBITDA
(10,888
)
691
(23,571
)
(965
)
Charges related to restructuring
activities
4,153
547
7,943
2,099
Stock compensation expense
1,968
4,230
2,278
5,810
Adjusted EBITDA(c)
$
(4,767
)
$
5,468
$
(13,350
)
$
6,944
__________
"Adjusted EBITDA(c)" is a non-GAAP financial measure, which is
defined at the end of this press release.
INVACARE CORPORATION AND SUBSIDIARIES
BUSINESS SEGMENTS (UNAUDITED)
The company operates in two primary business segments: North
America and Europe with each selling the company's primary product
categories, which includes: lifestyle, mobility and seating and
respiratory therapy products. Sales in Asia Pacific, which do not
meet the quantitative criteria for determining reportable segments,
are reported in All Other and include products similar to those
sold in North America and Europe. Intersegment revenue for
reportable segments was $11,569,000 and $27,100,000 for the three
and six months ended June 30, 2022 compared to $22,893,000 and
$42,396,000 for the three and six months ended June 30, 2021. 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
2022
2021
Change
2022
2021
Change
Revenues from external customers
Europe
$
112,768
$
121,296
$
(8,528
)
$
230,847
$
234,071
$
(3,224
)
North America
68,718
96,247
(27,529
)
144,037
172,221
(28,184
)
All Other (sales in Asia Pacific)
7,531
8,321
(790
)
15,121
15,774
(653
)
Consolidated
$
189,017
$
225,864
$
(36,847
)
$
390,005
$
422,066
$
(32,061
)
Operating income (loss)
Europe
$
3,489
$
4,992
$
(1,503
)
$
6,714
$
8,824
$
(2,110
)
North America
(6,264
)
1,590
(7,854
)
(14,600
)
(785
)
(13,815
)
All Other
(7,866
)
(9,529
)
1,663
(15,590
)
(15,169
)
(421
)
Charges related to restructuring
activities
(4,153
)
(547
)
(3,606
)
(7,943
)
(2,099
)
(5,844
)
Consolidated operating loss
(14,794
)
(3,494
)
(11,300
)
(31,419
)
(9,229
)
(22,190
)
Loss on debt extinguishment including debt
finance charges and fees
—
—
—
—
(709
)
709
Net interest expense
(6,229
)
(6,084
)
(145
)
(12,481
)
(11,814
)
(667
)
Loss before income taxes
$
(21,023
)
$
(9,578
)
$
(11,445
)
$
(43,900
)
$
(21,752
)
$
(22,148
)
__________
“All Other” consists of operating income (loss) associated with
the company's businesses in the Asia Pacific region and unallocated
corporate selling, general and administrative ("SG&A") expenses
and intersegment eliminations, which do not meet the quantitative
criteria for determining reportable segments.
INVACARE CORPORATION AND SUBSIDIARIES
BUSINESS SEGMENT NET SALES (UNAUDITED)
The following tables provide net sales changes by segment as
reported and as adjusted to exclude the impact of foreign exchange
translation (constant currency net sales(a)) for the periods
referenced below. 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, 2022 compared to June 30, 2021:
Reported
Foreign Exchange Translation
Impact
Constant Currency
Europe
(7.0
)%
(9.8
)%
2.8
%
North America
(28.6
)
(0.2
)
(28.4
)
All Other (sales in Asia Pacific)
(9.5
)
(7.7
)
(1.8
)
Consolidated
(16.3
)%
(5.6
)%
(10.7
)%
Six months ended June 30, 2022 compared to June 30, 2021:
Reported
Foreign Exchange Translation
Impact
Constant Currency
Europe
(1.4
)%
(8.2
)%
6.8
%
North America
(16.4
)
(0.2
)
(16.2
)
All Other (sales in Asia Pacific)
(4.1
)
(7.0
)
2.9
Consolidated
(7.6
)%
(4.9
)%
(2.7
)%
__________
"Constant currency net sales(a)" is a non-GAAP financial
measure, which is defined at the end of this press release.
INVACARE CORPORATION AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
(unaudited)
(In thousands)
June 30, 2022
December 31,
2021
Assets
Current Assets
Cash and cash equivalents
$
43,909
$
83,745
Trade receivables, net
90,949
117,115
Installment receivables, net
284
218
Inventories, net
138,806
144,274
Other current assets
43,097
40,036
Total Current Assets
317,045
385,388
Other Assets
6,671
5,362
Intangibles, net
26,079
26,356
Property and Equipment, net
55,884
60,921
Finance Lease Assets, net
59,513
63,029
Operating Lease Assets, net
10,679
12,600
Goodwill
336,750
355,875
Total Assets
$
812,621
$
909,531
Liabilities and Shareholders’
Equity
Current Liabilities
Accounts payable
$
111,562
$
130,036
Accrued expenses
105,151
102,971
Current taxes payable
2,102
3,914
Current portion of long-term debt
2,161
3,107
Current portion of finance lease
obligations
3,085
3,009
Current portion of operating lease
obligations
3,551
4,217
Total Current Liabilities
227,612
247,254
Long-Term Debt
311,489
305,022
Long-Term Obligations - Finance
Leases
60,710
63,736
Long-Term Obligations - Operating
Leases
7,057
8,234
Other Long-Term Obligations
58,149
66,796
Shareholders’ Equity
147,604
218,489
Total Liabilities and Shareholders’
Equity
$
812,621
$
909,531
INVACARE CORPORATION AND
SUBSIDIARIES
RECONCILIATION FROM NET CASH
PROVIDED (USED) BY
OPERATING ACTIVITIES TO FREE
CASH FLOW(d)
Three Months Ended
Six Months Ended
(In thousands)
June 30
June 30
2022
2021
2022
2021
Net cash used by operating activities
$
756
$
(22,290
)
$
(26,942
)
$
(36,050
)
Plus:
Sales of property and equipment
—
—
5
23
Less:
Purchases of property and equipment
(633
)
(4,929
)
(2,764
)
(9,047
)
Free Cash Flow(d) (usage)
$
123
$
(27,219
)
$
(29,701
)
$
(45,074
)
__________
"Free Cash Flow(d) is a non-GAAP financial measure, which is
defined at the end of this press release.
Definitions of Non-GAAP Financial Measures
(a) "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. The "Business Segments Net Sales" table accompanying this
press 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, 2022 and June 30, 2021, 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) "Constant Currency SG&A" is a non-GAAP financial
measure, which is defined as selling, general and administrative
("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.
(c) "Adjusted EBITDA" is a non-GAAP financial measure, which is
defined as earnings before interest, taxes, depreciation and
amortization and calculated as net loss plus: income taxes,
interest expense-net, net gain or loss on convertible debt
derivatives, net gain or loss on debt extinguishment including debt
finance charges and fees, asset write-downs related to intangible
assets, impairment of goodwill, net gain or loss on sale of
business, and depreciation and amortization, as further adjusted to
exclude charges related to restructuring activities and stock
compensation expense. It should be noted that the company's
definition of Adjusted EBITDA may not be comparable to similar
measures disclosed by other companies because not all companies and
financial analysts calculate Adjusted EBITDA in the same manner.
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 Income (Loss) to
Adjusted EBITDA” table included in this press release.
(d) "Free cash flow" is a non-GAAP financial measure, which is
defined as net cash provided (used) by operating activities less
purchases of property and equipment plus proceeds from sales of
property and equipment. The company 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 Provided (Used) by Operating Activities to Free Cash Flow”
table included in this press release.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220808005654/en/
INVESTOR CONTACT: Lois Lee loislee@invacare.com
440-329-6435
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