Invacare's final audit delayed, but 'under control'

ELYRIA, Ohio - Invacare expects to have a third and final audit completed and submitted to the U.S. Food and Drug Administration (FDA) by mid-November, officials told shareholders during a July 25 conference call to discuss the company's second quarter earnings.

Invacare originally had June 30 as a target, but in working up to that date, the company's third-party auditor found its quality systems “had a level of complexity that was far beyond what was necessary to be compliant,” said President and CEO Gerry Blouch.

“We've gone back and remade those processes and redone training, and the third-party auditor has reviewed that work and is close to finalizing the re-documentation of the new processes,” he said. “We're comfortable that we have everything under control. All the heavy lifting is done. There's little uncertainty going forward with respect to that.”

The FDA approved Invacare's second audit July 16, allowing the company to resume design activities. It approved Invacare's first audit in May, allowing the company to resume certain manufacturing and distributing at the Taylor Street facility for further manufacturing elsewhere.

After the FDA receives and reviews the third and final audit, it will conduct its own review. Blouch declined to speculate on how long that review will take.

“We are not giving any specific indication post-November,” he said. “It's in the FDA's hands. They'll take the time they need.”

More pain for HME

Largely due to its consent decree with the FDA, Invacare reported an 11.6% decrease in net sales for North America/HME, from $180.4 million for the second quarter of 2012 to $159.5 million for the same period this year. The biggest declines were in mobility and seating, and lifestyle products.

“The number of new orders that were fulfilled in the second quarter represented only 10.8% of Invacare's unit volume of domestic power wheelchair shipments from the facility in the same period last year,” the company stated in its earnings report.

To boot: North America/HME took a $400,000 hit in the quarter for an anticipated warranty expense related to a power wheelchair component issue. The FDA is reviewing Invacare's proposed action plan for this issue.

Declines were partially offset by increases in respiratory products, including a large order of HomeFill oxygen systems by a large national account.

Divesting and bidding

To reduce costs, officials say, Invacare continues to look to divest companies that aren't part of its core equipment business. It sold Invacare Supply Group late last year, and it plans to close Invacare HCS, a billing company, in August.

“We want to be able to focus that money on paying down debt and for growth going forward,” said CFO Rob Gudbranson, who declined to talk about specific companies. “We continue to look hard at, where do we allocate capital and put money going forward.”

Officials had little to say about the expansion of competitive bidding to 91 cities on July 1.

“It's too early to tell,” Blouch said. “There's some softness in the lifestyle product category, but there has been an increase in demand for HomeFill. There's no clear, compelling movement there. Three weeks into it, not much has changed.”

The rest of the numbers

Invacare reported net sales of $351.8 million for the second quarter of 2013 compared to $372.7 million for the same period last year, a 5.6% decrease. Net loss was $9.25 million vs. $1.98 million.

For the six months ended June 30, 2013, Invacare reported net sales of $689.4 million compared to $727.8 million for the same period last year. Net revenues were $25.8 million vs. $6.3 million.