Invacare Corporation Announces Financial Results for the Fourth Quarter and Full Year Ended December 31, 2020

Improves full year profitability and achieves breakeven free cash flow
Turns North America segment profitable for the year
Provides 2021 guidance and outlook

ELYRIA, Ohio--(BUSINESS WIRE)--Invacare Corporation (NYSE: IVC) ("Invacare" or the "company") today announced its financial results for the fourth quarter and year ended December 31, 2020.

Fourth Quarter and Full Year Summary

Reflecting on 2020 results, Matt Monaghan, chairman, president and chief executive officer, commented, "We started 2020 enthusiastic for a strong year of commercial execution, launching new products and continuing to simplify our business. I'm pleased that, despite the unforeseen challenges of the pandemic, we still managed to achieve remarkable results. As guided, in the fourth quarter we achieved improvement in sequential consolidated net sales of 5.7% and constant currency sequential net sales of 4.2%, driven by continued respiratory strength, increased sales of lifestyle products, and growth in North America mobility and seating products. In addition, sequential gross profit increased 100 basis points and free cash flow improved by $17.4 million sequentially. This would not have been possible without the inspired and tireless support of our associates, who battled through global supply challenges, found creative ways to engage with our customers and end users, and adapted quickly to new work environments, all while ensuring the health and safety of our colleagues.

With fourth quarter adding to the strong results from the three prior quarters, full year operating income increased $21.7 million and Adjusted EBITDA increased $3.2 million compared to prior year, despite the pandemic's challenges to healthcare access and supply chain fulfillment. During the year, we launched compelling new products, improved gross profit margin, and effectively managed SG&A expenses to achieve these results. Importantly, after years of improvements, North America returned to profitability with a more than $17.0 million improvement in operating income on a modest increase in constant currency net sales.

Looking ahead, we expect revenue growth from our full offering of recently launched products and the pipeline of more new products launching in 2021. We anticipate pent-up demand for mobility and seating products to support sales growth in the future as public health restrictions diminish. In addition, the German plant consolidation completed in 2020, and the ongoing IT modernization program, will simplify how we do business and generate sustainable growth, long-term profit and shareholder value.

While we could not have predicted the pandemic that tested the resolve of our customers, suppliers, associates and people who rely on our products every day, I am incredibly proud of all we accomplished."

Key Metrics and Financial Results (4Q20 versus 4Q19*)

• Reported net sales decreased 3.8% to $224.0 million, and constant currency net sales^(a) decreased 5.7%.
  • Revenue growth in respiratory products was more than offset by lower sales of mobility and seating and lifestyle products, which continued to be impacted by limited access to healthcare professionals and long-term care facilities.

• Operating income was $1.2 million compared to a loss of $3.8 million.
  • The improvement of $5.0 million was primarily driven by lower SG&A and restructuring expenses. Gross profit margin was favorable due to product mix partially offset by unfavorable manufacturing variances due to lower volume. In general, revenue growth was also negatively affected by the pandemic's impact on the overall economy which more than likely adversely impacted sales beyond access to healthcare facilities and professionals.

• Adjusted EBITDA^(c) was $9.5 million compared to $13.9 million, due to reduced gross profit on lower sales partially offset by lower SG&A expenses.
• Free cash flow^(d) was $15.6 million, an improvement of $11.8 million, compared to $3.8 million, driven primarily by lower working capital and higher operating income.

^* Date format is quarter and year in each instance.

Key Metrics and Financial Results (Full Year 2020 versus Full Year 2019)

• Reported net sales decreased 8.3% to $850.7 million and constant currency net sales decreased 7.2%
  • Revenue growth in respiratory products was more than offset by lower sales of mobility and seating and lifestyle products, which continued to be impacted by limited access to healthcare professionals and long-term care facilities.

• Operating income improved to $11.3 million compared to a loss of $10.4 million.
  • The significant improvement of $21.7 million was primarily driven by lower SG&A expenses, gain from the divestiture of Dynamic Controls and lower restructuring costs offset by decreased gross profit on lower sales.

• Adjusted EBITDA^(c) was $31.9 million, an improvement of $3.2 million, driven by lower SG&A expenses.
• Free cash flow^(d) improved by $8.1 million to break-even, driven primarily by stronger operating results and reduced working capital.

Commenting on the company’s financial results for the year ended December 31, 2020, Kathy Leneghan, senior vice president and chief financial officer, stated, “For the full year, we delivered improved financial performance and breakeven free cash flow even against the backdrop of a pandemic which lowered net sales. This performance reflects the impact of our strategic initiatives, which helped us achieve results in-line with our 2020 financial guidance, as well as higher gross profit margin of 60 basis points and lower SG&A expenses. Importantly, we also took steps to improve our financial flexibility by substantially addressing a significant portion of our near-term debt through retiring or extending the maturity of our convertible notes due in 2021 and 2022."

Segment Results (4Q20 versus 4Q19)

Europe - Constant currency net sales decreased 11.4%, primarily due to a 20.0% decrease in mobility and seating products which continued to be impacted by pandemic-related restrictions affecting access to healthcare and the lingering impact of supply chain disruptions. As a result, operating income decreased $7.5 million, or 55.3%, principally due to lower gross profit primarily driven by unfavorable manufacturing variances on lower volume, partially offset by reduced SG&A expenses.

North America - Constant currency net sales increased 1.6%, primarily driven by a 72.2% increase in respiratory sales. Mobility and seating net sales decreased 15.1%, which continued to be impacted by restrictions affecting access to healthcare. Gross profit increased 510 basis points, positively impacted by favorable sales mix in each product category and lower material and freight costs. Operating income improved $4.0 million primarily driven by higher gross profit and reduced SG&A expense.

All Other - Constant currency net sales in the Asia Pacific region increased 16.2% driven by growth in all product categories, with a 35.9% improvement in mobility and seating products. Operating loss improved by $2.5 million primarily driven by improved operating income in the Asia Pacific business due primarily to increased net sales, and lower SG&A expense related to corporate stock compensation.

Segment Results (Full Year 2020 versus Full Year 2019)

Europe - Constant currency net sales decreased 12.8%, primarily due to a 18.3% decrease in mobility and seating products which continued to be impacted by pandemic-related restrictions affecting access to healthcare and supply chain disruptions. As a result, operating income decreased $13.5 million, or 37.3%, principally due to lower gross profit, impacted by the pandemic with unfavorable product mix and unfavorable manufacturing variances from lower volume, offset by reduced SG&A expenses.

North America - Constant currency net sales increased 0.1%, primarily driven by a 40.1% increase in respiratory sales. Mobility and seating net sales decreased 9.8%, which continued to be impacted by restrictions affecting access to healthcare and the lingering impact of supply chain disruptions. Gross profit increased 260 basis points and was positively impacted by favorable material and freight costs, as well as improved sales mix in each product category, partially offset by unfavorable manufacturing variances. Operating income improved $17.0 million primarily driven by improved gross profit and reduced SG&A expense.

All Other - Constant currency net sales in the Asia Pacific region increased 5.3% principally driven by increased sales of lifestyle products, primarily beds and mattresses. Operating loss improved $3.3 million primarily driven by improved operating profit in the Asia Pacific business due largely to sales growth and reduced SG&A expense related to corporate stock compensation.

Financial Condition

Key balances on the company's balance sheet and related metrics:

⁽¹⁾ Current assets less current liabilities.
⁽²⁾ Long-term debt and total debt includes financing leases, but excludes debt issuance costs recognized as a deduction from the carrying amount of debt liability and debt discounts classified as debt or equity and operating leases.
⁽³⁾ Reflects the combined availability of the company's North American and European asset-based revolving credit facilities before borrowings. The change in borrowing availability is due to changes in the calculated borrowing base. At December 31, 2020 the company had drawn $20,000,000 on the North American credit facility and $11,502,000 on the European credit facility. Outstanding borrowings are based on credit availability calculated on a month lag related to the European credit facility. The company had no borrowings on credit facilities at December 31, 2019.

In 4Q20, the company generated $15.6 million of free cash flow compared to $3.8 million in 4Q19. The improvement in free cash flow was attributable to higher operating income and improved working capital.

Total debt outstanding as of December 31, 2020 consisted of $231.3 million in convertible debt, $31.5 million of credit facilities, $66.5 million in financing leases and $10.6 million of other debt. Total and long-term debt as of December 31, 2020 included unamortized debt discounts of $25.1 million and additional offset for debt fees of $3.2 million related to convertible debt.

2020 Highlights

In 2020, the company made significant progress in its plan to drive improved financial performance and strengthen its overall business profile by taking actions such as:

• Enhancing its award winning product portfolio, launching power wheelchairs with standing capabilities, power add-ons for manual wheelchairs, beds, lifts, and slings, all of which are expected to drive future incremental sales and expand margins;
• Completing the outsourcing of the IT infrastructure and commencing the roll out of a modernized IT systems in Canada and New Zealand;
• Completing the consolidation of three German facilities, which is expected to generate annual pre-tax cost savings of approximately $5 million;
• Divesting Dynamic Controls and entering into a long-term supply agreement with Allied Motion Technologies; and,
• Strengthening the balance sheet by retiring approximately $25 million of 2021 convertible notes and executing convertible note exchanges that effectively extended the maturity of approximately $74 million of convertible notes to 2024, in addition to the approximately $73 million similarly extended in 2019.

Full Year 2021 Guidance

Based on expectations of continued progress in the company's performance, increased visibility into the path of recovery for its customers, expected improvement in access to healthcare, improvements to global pandemic-related supply chain disruptions, and pent-up demand from the prior year, the company expects operating results for the full year 2021 consisting of:

• Constant currency net sales growth in the range of 4% to 7%;
• Adjusted EBITDA improvement of 41%, to $45 million; and,
• Free cash flow of $5 million.

The company participates in durable healthcare markets and serves a persistent need for its products. The company expects to grow full-year revenue by effectively engaging with customers interested in its broad portfolio and new products. However, public health restrictions currently in place, especially severely in Europe, may result in net sales in the first quarter to be down slightly to mid-single digits as compared to the prior year, which was not impacted by the pandemic. The company will continue to improve operating efficiency, together with the lifting of public health restrictions, yielding improved financial performance. As a result, the company expects to grow revenue, profitability, and free cash flow in the year.

Conference Call and Webcast

As previously announced, the company will provide a conference call and webcast for investors and other interested parties to review its fourth quarter and full year 2020 financial results on Thursday, February 11, 2021 at 8:30 AM ET. Those wishing to participate in the live call should dial 888-204-4368, or for international callers 786-789-4797, and enter Conference ID 1719902. A simultaneous webcast of the call will be accessible at https://ctevents.webex.com/ctevents/onstage/g.php?MTID=efa0807d7ce2f40e38b309e6176c4c849. A copy of the webcast slide deck will be posted to www.invacare.com/investorrelations prior to the webcast.

A recording of the conference call can be accessed by dialing 888-203-1112 (U.S. and Canada) or 719-457-0820 (international callers) and entering the Conference ID Code 1719902, PIN 2103, through February 18, 2021. An archive of the webcast presentation will be posted at www.invacare.com/investorrelations 24 hours after the call.

Upcoming Investor Events

• March 16, 2021 - Oppenheimer Healthcare Conference (virtual)
• March 16, 2021 - Morgan Stanley Healthcare Corporate Access Day (virtual)
• March 23, 2021 - KeyBanc Life Sciences & Medtech Investor Forum (virtual)
• April 12, 2021 - Needham Healthcare Conference (virtual) 

About Invacare Corporation

Invacare Corporation (NYSE: IVC) ("Invacare" or the "company") is a leading manufacturer and distributor in its markets for medical equipment used in non-acute care settings. At its core, the company designs, manufactures, and distributes medical devices that help people to move, breathe, rest and perform essential hygiene. The company provides clinically complex medical device solutions for congenital (e.g., cerebral palsy, muscular dystrophy, spina bifida), acquired (e.g., stroke, spinal cord injury, traumatic brain injury, post-acute recovery, pressure ulcers) and degenerative (e.g., ALS, multiple sclerosis, chronic obstructive pulmonary disease (COPD), elderly, bariatric) ailments. The company's products are important parts of care for people with a wide range of challenges, from those who are active and involved in work or school each day and may need additional mobility or respiratory support, to those who are cared for in residential care settings, at home and in rehabilitation centers. The company sells its products principally to home medical equipment providers with retail and e-commerce channels, residential care operators, distributors and government health services in North America, Europe and Asia Pacific. For more information about the company and its products, visit the Invacare's website at www.invacare.com.

This press release contains forward-looking statements within the meaning of the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those that describe future outcomes or expectations that are usually identified by words such as “will,” “should,” “could,” “plan,” “intend,” “expect,” “continue,” “forecast,” “believe,” and “anticipate” and include, for example, statements related to the expected effects on the company’s business of the COVID-19 pandemic; sales and free cash flow trends; the impact of contingency plans and cost containment actions; the company’s liquidity and working capital expectations; the company’s future financial results; and similar statements. Actual results may differ materially as a result of various risks and uncertainties, including the duration and scope of the COVID-19 pandemic, the resumption of access to healthcare, including clinics and elective care, and loosening of public health restrictions, or any reimposed restrictions on access to health care or tightening of public health restrictions and impact on the demand for the company’s products; the ability of the company to obtain needed raw materials and components from its suppliers; actions that governments, businesses and individuals take in response to the pandemic, including mandatory business closures and restrictions on onsite commercial interactions; the impact of the pandemic and actions taken in response to the pandemic on global and regional economies and economic activity; the pace of recovery when the COVID-19 pandemic subsides; general economic uncertainty in key global markets and a worsening of global economic conditions or low levels of economic growth; the effects of steps the company takes to reduce operating costs; the inability of the company to sustain profitable sales growth, achieve anticipated improvements in segment operating performance, convert high inventory or accounts receivable levels to cash or reduce its costs to maintain competitive prices for its products; lack of market acceptance of the company's new product innovations; circumstances or developments that may make the company unable to implement or realize the anticipated benefits, or that may increase the costs, of its current and planned business initiatives, such as its new product introductions, commercialization plans, additional investments in sales force and demonstration equipment, product distribution strategy in Europe, supply chain actions and global information technology outsourcing and ERP implementation activities; possible adverse effects on the company's liquidity, including the company's ability to address future debt maturities, that may result from delays in the implementation of, any failure to realize benefits from, its current and planned business initiatives; adverse changes in government and third-party payor reimbursement levels and practices in the U.S.; adverse impacts of new tariffs or increases in commodity prices or freight and logistics costs; regulatory proceedings or the company's failure to comply with regulatory requirements or receive regulatory clearance or approval for the company's products or operations; adverse effects of regulatory or governmental inspections of the company's facilities at any time and governmental investigations or enforcement actions; exchange rate fluctuations; and those other risks and uncertainties expressed in the cautionary statements and risk factors in the company's annual report on Form 10-K, quarterly reports on Form 10-Q and other filings with the Securities and Exchange Commission. The company may not be able to predict and may have little or no control over many factors or events that may influence its future results and, except as required by law, shall have no obligation to update any forward-looking statements.

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* Net loss per share assuming dilution calculated using weighted average shares outstanding - basic for periods in which there is a loss.

Lois Lee
loislee@invacare.com
440-329-6435