Invacare reports ‘challenging’ results

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Friday, November 9, 2018

ELYRIA, Ohio – Invacare had a bumpy third quarter, courtesy of Medicare’s competitive bidding program and new tariffs.

The company says its North America HME division experienced significantly higher costs from materials sourced both domestically and internationally due to tariffs—to the tune of $1.3 million for the quarter.

“We’ll continue to implement actions to mitigate the impact of tariffs on our business,” including potentially redesigning products to lower the use of raw materials, or converting from raw materials to semi-finished products, said Matt Monaghan, chairman, president and CEO.

Invacare reported net sales decreased 2.5% to $244.6 million for the third quarter of 2018 compared to the same period last year. Net sales for the NA HME division decreased 7.3% to $73.6 million.

A big reason for those decreases, particularly for respiratory products: Providers have held off on equipment purchases until they see what the market is like on Jan. 1, when any Medicare-enrolled provider will be able to provide DME during a two-year gap period in the bid program.

“It’s reasonable to expect incumbent providers are hesitating before they make big equipment purchases coming into next year…and the new entrants are probably going to see what it takes to conduct business in areas where they have not been conducting business,” Monaghan said. “It’s going to compress respiratory sales temporarily until the new dynamics work out and we get a new balance of who’s providing equipment. That could take some portion of the first quarter or beyond.”

Also not helping with sales of respiratory products is Invacare’s decision to lay off about 50 associates and to raise prices, in an attempt to offset the higher costs from tariffs.

“Despite the strong clinical, business and services values we offer, these higher prices may make our products less competitive,” Monaghan said.

By most accounts it was a tough quarter among a string of tough quarters for Invacare, which is working to rebound from a years-long consent decree from the U.S. Food and Drug Administration to hit $100 million in EBITDA by late 2020.

“Had any one of these (headwinds) occurred in the quarter, it would have been more manageable,” Monaghan said. “The fact that all of these are occurring at the same time has led to the challenging results we see.”

The next 60 days will be crucial for Invacare. If a 10% tariff becomes a 25% tariff in January, as planned, the company may have to revise its strategy for meeting the $100 million goal.

“It’s just happening too fast to tell people,” Monaghan said. “What we wanted to raise on today’s call is…we simply don’t have a place to put our next flag. Our internal confidence remains that there are enough things that we can do in our business to effect the same outcome. We just have to decide over the next 60 days what our assumptions are going be for how 2019 plays out and then we’ll get right after it. Our commitment is to try to meet that $100 million EBITDA run rate on target.”