Invacare sets stage for turnaround

Company plans to resume design activities mid-year
Friday, February 8, 2013

ELYRIA, Ohio – Invacare officials hope they have put “one of the most challenging years in the company’s history” behind them.

President and CEO Gerry Blouch said during an earnings call Feb. 8 that the company expects to complete two audits related to an agreement with the Food and Drug Administration (FDA) in the first quarter of 2013, and a third audit in the second quarter of this year.

After completing the second audit, Invacare may resume design activities, which paves the way for the company to introduce new products, resume globalization efforts and, ultimately, deliver on its long-term goals of $100 million in cost improvements and high single-digit operating margins, Blouch said.

In 2012, the uncertainty surrounding Invacare’s ability to continue manufacturing operations under the agreement and the lack of new products resulted in a loss of market share and gross margin pressure in the North America/HME segment, Blouch said.

“The year was dominated by our consent decree negotiations with the FDA,” he said.

The numbers

For the fourth quarter of 2012, net sales for North America/HME were $165.8 million, an 8.8% decrease compared to the same period in 2011. Net loss was $1.8 million, excluding restructuring charges of $2 million and intangible impairment charges of $100,000, versus net earnings of $15 million.

For 2012, net sales for HME were $693.3 million, a 7.2% decrease compared to 2011. Net earnings were $7.9 million, excluding restricting charges of $4.2 million and intangible impairment charges of $100,000, versus $48.7 million.

Company-wide, for the fourth quarter, net sales from continuing operations were $360.4 million, a 3.7% decrease compared to the same period in 2011. Net loss was $10.8 million vs. $39.7 million.

Because Invacare sold Invacare Supply Group (ISG) to AssuraMed in a deal that closed in January, the results for the fourth quarter and the year include the results of ISG as a discontinued operation.

Another wild card

Now that CMS has made contract offers as part of Round 2 of competitive bidding, Invacare expects some providers to get off the sidelines and start making product purchases again, Blouch said

“There was uncertainty,” he said. “The smart business people—they were reluctant to load up. Now at least they know who’s in the game or out of the game.”

But with the payment amounts attached to those contracts, on average, 45% below the current fee schedule, Invacare expects continued consolidation in the provider base, Blouch said.

“We saw consolidation in the double digits (in Round 1),” he said. “Having said that, it’s still a fractured market. We’re still a long way from hyper consolidation.”

Blouch downplayed any impact competitive bidding will have on its pricing (if providers expect reduced pricing on products to help them, they’re “toast,” he said) and credit losses.

“We did the fire drill in Round 1 and skated through without any credit losses of significance,” he said.