Sale boosts Invacare's earnings

Company prepares for life post-consent decree
Friday, October 25, 2013

ELYRIA, Ohio – The sale of Champion Manufacturing, a medical recliner business for dialysis clinics, provided a much-needed shot in the arm to Invacare’s third quarter earnings.

Invacare sold Champion in August, helping it to boost net earnings to $16.1 million for the quarter ended Sept. 30 compared to $2.9 million for the same period last year. The sale also helped the company to reduce total debt outstanding to $58.9 million.

Net sales, however, fell to $341.2 million for the quarter compared to $361.5 million for the same period last year, a 5.6% decrease.

A consent decree with the U.S. Food and Drug Administration (FDA) that has restricted Invacare’s ability to manufacture products at its Taylor Street facility, particularly mobility and seating products, continues to drag down sales. The company estimates that sales from the facility were $12 million for the quarter compared to $37.6 million for the same period last year, a whopping 68% decrease.

For North America/HME, net loss was $9 million for the quarter, excluding restructuring charges of $1.2 million, compared to $300,000 for the same period last year, excluding charges of $400,000. Net sales were $151.1 million vs. $170.7 million, an 11.5% decrease.

Invacare officials maintain that the company is turning the corner. To lift the decree, it must submit to the FDA one more third party audit—something it still plans to do in mid-November.

Then it must undergo a final inspection by the FDA. While Invacare officials wouldn’t provide any color on when that would happen or how long it would take, they say the company is ready to hit the ground running when it gets the green light. Officials have put together an eight-part plan for introducing new products, regaining market share and more.

“The ink is dry and we plan to give a formal presentation to the board shortly,” said Gerry Blouch, CEO, during a conference call to discuss the earnings report.

Of course, another large obstacle lurks. Invacare officials say it’s still too early to gauge the impact of Round 2 of competitive bidding, which kicked off in 91 cities on July 1, but in its earnings report, it noted an “increased bad debt expense in part due to the early impact of the program on a large customer.”

“It was an account that had an issue,” said Rob Gudbranson, CFO, during the call. “They didn’t win bids (and) that led to difficulty getting bank lines. We don’t think it’s a trend; it’s a special situation. But we’re focused on this because accounts receivable could be a big risk. We wouldn’t have expected something like this this early.”

One silver lining from competitive bidding: Providers are looking to technology to do their jobs more effectively and efficiently. For a number of quarters now, Invacare has reported large orders of HomeFill oxygen systems by a large national account.

“Our solution for the marketplace is technology and quality,” Blouch said. “The majority of products included in bidding were rental fleet. (Providers need) products that are rugged and reliable and reduce operating costs. People get the fleet management story. Why spend 10% less for something that doesn’t last as long?”

Rounding out the earnings report: Company-wide, net sales for the first nine months of the year were $1.02 billion compared to $1.08 billion for the same period last year. Net earnings were $38.8 million vs. $9.1 million.

For North America/HME, net sales for the first nine months of the year were $462.3 million compared to $527.1 million last year. Net loss was $28.8 million, excluding restructuring charges of $4.8 million, versus $10.3 million, excluding charges of $2.2 million.