Invacare targets convergence in 2020

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Friday, November 8, 2019

ELYRIA, Ohio – Invacare’s not done cost cutting, but it’s now in a place where it can also focus on increasing revenues through new product launches, says Matt Monaghan.

To prime the pump, Invacare plans to launch new products in all categories next year—“in a uniform fashion, nearly every 60 days,” said Monaghan, chairman, president and CEO. These products are all nearly complete in design or under regulatory review, he said.

“We really need cost reductions and product launches to converge in the first half of 2020,” Monaghan said during a conference call to discuss the company’s financial results for the third quarter of 2019.

The shift comes as Invacare reported relatively stable net sales for the third quarter year over year ($235.8 million vs. $244.6 million), and an improvement in net income ($8 million vs. $12 million loss). It also reported SG&A improved by 9.2% and constant currency SG&A improved 7.6%. Operating income also hit $2.4 million.

For North America HME, the company reported net sales decreased 1.9% in the third quarter this year compared to the same period last year, but excluding respiratory, sales were stable year over year and increased from the second to third quarter.

“We achieved improvements in gross profit in each of the main categories, including respiratory,” said Kathy Leneghan, senior vice president and CFO.“Importantly, operating loss improved by $9.6 million or 85%, primarily due to reduced SG&A expenses; improved gross profit; and a focus on higher quality, more favorable mix of sales. Returning this segment to profitability is key to our transformation and we continue to make great strides.”

The “next big bolus of cost to come out” of Invacare will be driven by a new IT system from Birlasoft. It recently signed a $240 million, multi-year contract with the company to overhaul its IT system and take over its service desk, applications, server, network and telephone support. First to go live with the new system: North America next year.

“This will be a key enabler of our transformation,” Monaghan said. “Working with Birlasoft, we expect to drive operational efficiencies, improve our customers’ experience and generate substantial cost savings.”

Invacare also brought onboard Angela Goodwin as CIO in March to ease the transition.

“She has implemented several different ERP systems very confidently with no issues,” Leneghan said, “so we’re very confident that can happen here, as well.”

Invacare is on track to achieve its goal of at least $20 million in adjusted EBITDA by the end of 2019, with $14.7 million already accumulated through the third quarter. It also re-affirmed its year-end run-rate goal of $85 million to $105 million of adjusted EBITDA in 2020.

When asked why Invacare wasn’t raising its targets for the year, in light of recent improvements, company officials said the fourth quarter might not be as strong as the third quarter due to seasonality issues.

“There are still a ton of moving parts in the transformation and not long ago we didn’t give any guidance at all,” Monaghan said. “We look forward in Q4 to reasonable strength and we have a lot of confidence for finishing up the year as we had expected.”