Change of focus drives improvements at Invacare

ELYRIA, Ohio - Invacare is holding tight to an improvement in gross margin for its beleaguered North America HME division as a sign that its turnaround efforts are paying off.

The company saw an increase in gross margin as a percentage of net sales of 2.5 percentage points in the second quarter this year compared to the same period last year. Driving that improvement: increases in net sales for mobility and seating products, which make up the majority of its clinically complex portfolio, an emerging focus for the company.

“The last two quarters of performance reflect a fundamental shift in the type of transactions that we're doing to serve customers,” said Matt Monaghan, chairman, president and CEO, during a July 28 conference call to discuss the company's recent financial results. “(These products) come with higher gross margin, because they're highly customized and they deliver more value for our customers. That is a fundamental shift that can continue in future quarters.”

For the North America HME division, Invacare reported net sales of $109.6 million for the second quarter of this year, compared to $119 million for the same period last year. It reported a net loss of $11.4 million vs. $7.8 million.

Invacare began focusing on its clinically complex portfolio in July of last year, when it started retraining much of its existing sales force. In the second quarter of this year, it also began beefing up that sales force.

“Much of what we're seeing right now is related to a turnaround we did with existing sales force and the training in early investments,” said Lara Mahoney, senior director of investor relations and corporate communications. “So more to come.”

But the big question mark surrounding Invacare remains its ongoing consent decree with the Food and Drug Administration, which limits what it can manufacture and sell from its Taylor Street facility. Earlier this year, the company seemed poised to move on to the third and final step of lifting the decree, only to get another letter from the FDA saying it had more work to do before moving forward.

During the call, Monaghan described that work as “limited” and “relatively straightforward.”

“But as we've demonstrated now for three quarters in a row, the company isn't about a consent decree,” he said. “I'm really pleased that the response we've gotten from the investors in the market is that they see we're able to do a tremendous amount to deliver better economic returns to our customers in spite of the consent decree. We are really not about the consent decree. We have a tremendous amount of value to offer.”

Once Invacare does enter the third and final step, there's no way to know how long it will take to complete, Monaghan said.

“Our best guess is it could be five months; it could be nine months; it could be longer; it could be shorter, but I don't think it could be extremely short,” he said.  “There is no real way to tell.”