IVC - Earnings call transcript Q3 2018

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Operator

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Invacare 2018 Third Quarter Conference Call and Webcast. [Operator Instructions] This conference is being recorded, Tuesday, November 6, 2018. I will now turn the call over to Lois Lee, Invacare's Director of Treasury and Investor Relations. Please go ahead.

Lois Lee

Rochelle. you, Thank

be today's on President on to Senior Invacare Matthew follow investors have we are President financial we quarter Joining and along, transformation. results Chief call this To Executive accompany Chairman, providing will Today, Officer. and Chief an Leneghan, slides our Officer Monaghan, webcast. third and XXXX update me with Financial from reviewing our and created Vice investors Kathy help

our can you webcast be web dialing-in, find in can we call link to our presentation those will slide For referring at a that invacare.com/investorrelations. be SEC today's during Further filings. information found

statements of matters Before differ refer that I statements that on those during Actual due Matt expressed future you make the materially note webcast that, forward-looking statement third like in earnings about our may second begins, to our today's the from slide cautionary call address to by our are results uncertainties I'd to in uncertain. quarter included may various we and page Company today the release. nature, and their

update on and our webcast of an the and our the today's slides as quarter for explanation the net well of release review in SG&A, cash information constant on Slide to-date. website. and we earnings flow, the in net strategy transformation On as be and third see as notes non-GAAP related currency call the items will currency X posted results the of be For an discussed progress considered financial that today's constant sales, Appendix net will in adjusted currency sales, such these constant our agenda, reconciliations sequential earnings provide to XXXX, of financial EBITDA, free loss; please

over with any Matt Monaghan. call to questions I We the will you now have. turn will may close

Matthew Monaghan

Lois good morning. you, Thank

areas with Company product we each geographic with As operate globally three people familiar geography. know, similar in in the groups

a during transition. through in that relatively the prolonged with costs grew isolated is working quarter, results Europe although and the is is slightly healthy, forecasted affecting product business Our transfer than higher

Our business, closing enough offset part Mobility business Asia improvement respiratory the what was FDA has should nature. letters talking healthy seating quarter were warning is IPG America. North a sales spent with and lifestyle Australia effect in a the America be North to fair especially time of the It growth, of products. reduction in temporary two a not amount business in in that and We and in about also a Pacific headwind substantial today tough of developed. and

Because yet raising from view many with us not costs experienced provide X China Turning from leaves U.S. domestic like integrated to as tariffs goods by companies impacted regard manufacturer. vertically to materials a increased source meaningful our competitors of With affected who to are affected on prices. prices are at Slide high by other suppliers disadvantage yet that which a not and materials tariffs, finished imported finished goods impacted, tariffs a directly results significantly higher I'd we like quarter, level the this factors tariffs. material

these to to impact these executing business. a During than more America raise continue be is North We're related We the potentially costs negative additional increases higher on anticipated. significantly approximately forward. in headwind incurred focused previously going suppliers actions cost prices as to tariffs. quarter, identifying HME domestic will estimated this million offset to and $X.X than anticipate This remediation our

we you'll products, absorb activity In affects business. the we to make and renewed our competitive. a the and prices products which tariffs to complex these in these costs, is result for actions to clinical, less certain a there services offer, to bidding U.S. our continue impact strong increase of our Despite rehabilitation the increases. higher offset on we With lifestyles significant respiratory material customers U.S., October to of may partially recall to price in As higher implement areas continue rise and competitive national business, in values lifestyles cost initiated products regard mitigate products. cost. We'll like respiratory

reimbursement facility reimbursement may meantime we a France. quarter until also negative in equipment. As operations are as have the reflected entrants. cautious especially In quarter this markets to published incurred effect last the between single simultaneous zip we understood these resettle XXXX, quarter been sales of consolidating bid purchases to to modalities. beyond the This sales discussed could in variances in have the approximately XXXX, winner rules Respiratory Switzerland reducing the new been affected We bid in January reimbursement to from a of Lifestyle both are first XXXX, from week, third unfavorable in believe are in third area. X, urban on exclusively previously In impact change $X.X rule new CMS traditional and for of sales groups with related providers lesser Sweden products anticipated non-portable the as be two each movements area. manufacturing will open new extent. which on in transfers. Europe, invest existing million awarded In incumbent to of by an providers codes have a and each impending changes

inventory gross Once it expect savings we these more cost profit has the will led million. us restructure. are these year-over-year to realize would would transfers levels would through fourth of fact transition we which see We been shown the substantially product of The the to improvement and of leads quarter. these all completed, that at of same continue $X.X unfavorable any been annual time been have the variances, have occurring the forecast to one results the have Excluding lower. challenging Had manageable. in occurred have impact quarter,

September the we of impacted flattening other to structure approximately simplify XX In have later segment. reorganized actions November sales taken net improve North associates. mentioned to force announced we the we management streamline and of America in reduction a months few in outlook previously term HME which North headwind. In past forecasted During the in to long America, the operations

to incur expect XXXX. be approximately annualized of of approximately which expensed in savings. completed, restructuring quarter to cash charges $X during $X.X million will we We realize pretax pretax Once the expect million, fourth total

While are never to they these to market business the easy, decisions were and size, necessary level. current Company's scale profit the needs,

America North in costs. grow profitable focus through sales appropriate Our is the business to with

loss $X.X $X.XX. derivatives. of decreased from results sales profit constant compared loss million, net America HME a lower million. loss to to $X.X a compared gains net improved $X and gross million. decreased due improved Free was usage million third improved included cash XXX costs XXXX. share primarily was improvement and to North was share $X.X $X.XX decreased a variances year. declined million, loss material provides The Slide million call million in sales as decrease from now review X.X% Operating GAAP SG&A. key unfavorable convertible segment products loss of compared last Pacific. of last of net driven Adjusted XXXX sales decrease to and Asia due with third debt primarily in of last and sales from net Europe, turn SG&A to lower to America usage to associated to by of of million continued year, the of let's Now costs. $X.X sheet. Europe. million, improved decreased a to EBITDA $X.X I'll operational improved compensation loss to result and Compared compared margin from X.X% flow by a $X.X $X.X an in Gross an million. the also or loss reduced lifestyle to over to a last freight expenses expense primarily U.S. $X.X and per $X.XX decline to Reported and HME Reported gross loss year $X.X year Operating in Constant X.X%, in quarter year benefited the and X.X% million. to net loss operating per last $XXX.X EBITDA highlights million, currency was year. respiratory a share in quarter. $X.X of per due North EBITDA million last by equity million tariffs, of decline to currency incurred compared negative points. Both to margin to basis and rise $XXX.X $X.X EBITDA deployment quarter the performance million the operating X, was $X.XX, Kathy, $X which balance review of improvement benefit on costs negative higher a in to sales compared

Kathy Leneghan

Thank Matt.

of sales and compared as sales historical in to to Sequentially, net X, Europe products. quarter declines a constant in the third Turning during mobility lifestyle increased which by net consistent increased and reported sales trends. XXXX, year, last X.X% net of sales seasonal is result seating, currency offset X.X%. increased Constant currency X.X%, respiratory grew with Slide

third respiratory which net both as grow last products due reimbursement strategically year, slightly to implemented profit declined mentioned sales sales which primarily to and as X same However, America/HME, SG&A increased compared as higher decreased XXXX. clinically tariffs. X.X% profit seating sales to $X.X decreased decreased valued On gross lower higher uncertainty and Bidding, unfavorable quarter increased margin the in in by believe impacted and Slide last margin and compared last and Operating freight previously X.X% well increased last dollars transformation related will freight National to apply the XXXX, to decreased changes margins, costs $X.X noted profit loss we constant Sales to million increased $X.X quarter on in sequentially year. may manufacturing last last unfavorable Mobility compared products. partially expected by guided, variances X.X% this for sales, focus million and the SG&A. Europe more lifestyle as decreased related increased regarding compared year, to to expense, to and North impacted compared primarily the currency segment compared reduced fourth be the January year, gross were R&D, Competitive to income gross Gross primarily in transfers. material costs same Operating reported by by to are year. items We to decline lower to expense. due quarter XXXX. to product million due year the to offset Gross related of from

flow to bed to net seating currency constant by was the products in XXXX sales On Slide offset sales a products, income as Australia reported net improvement as third expense. decreased the projects to principally and $X.X well X. and sales last increased driven we X.X%. increased the quarter Gross quarter XX, by Slide for quarter XX.X% declines, Pacific, to due declined XX%, to to interior million The design year third segment, cash guided $X.X report primarily income compared to cash same and lifestyle in reported decreased Slide the net increased compared sales as million currency that improved in decreased warranty profit IPG Previously, by was mobility to institutional and XXXX similar compared Asia XXXX, company related last in In primarily million, products. partially XX, increase On Turning of R&D operating year, constant the sales of $X.X reduced to usage an would compared X.X% net and bed sales expense. net period primarily sales XXXX. and and be to XXXX. the reduced free result negative Operating declines free flow third products.

may However, the transfers in and we net sales Europe. Competitive increased given products described the increase flow and respiratory usage cash decline, the related National inventory including specifically headwinds uncertainty tariffs, product that to previously, believe Bidding in

under of Of balances believe we should diligent we transformation. facility being be to and our the flow cash our and in for the borrowing fund managing capacity available our the remainder sufficient year, course, are credit usage cash

September of XX, X XXXX, under As facility. drawn credit we revolving have

America inventory conversion of as to transfers, were As call compared approximates back of the of and quarter inventory Matt. was XXXX. days to compared approximately December end increase day XX, million. of I to days the excess to turn quarter end reflected as XX days, in days in the as XX, will XX impacted the XX inventory slower-than-anticipated the third Days at sales cash XXXX. of Europe of third completion by product The the due XX December over at the now and in respiratory $X were in North which in increases the in products receivables

Matthew Monaghan

the the to we Thank introduction forecast you, seatings. of benefiting and lower sales of capital. approach on expedited XX lifestyle have should seating run Kathy. and our grow Once seize to long-term growth the our on and we cost, Europe, finalized America, million a which and new net inventory should levels respiratory Slide On increased we is rate. product reduce products multichannel In update transfers, XXXX, focus margins improved commitment is see working mobility in North to some in from mobility in freight the gross implementing care EBITDA products $XXX post-acute and continued and products. sales, lead exciting and In

we the by dynamics However, within impact this caused due revised we original be cost there's our to respiratory, on improved soon goal. total actions unpredictable implement our gross that, address the to continue cost it associates impacting declining contribute taking markets, to structure for related plan. to on customers achieving act instability market organization to legislation nature we offset is to engage our tariffs as will be need of high-quality more risk on now to offering you clients margins by to will expect growing With to in there remain reflect our seating, to With changing and to discussed, continue and be of will reduces like cost EBITDA tariffs, products the tariffs be changes providers for may phone in We the lines we addressed reimbursement. state-of-the-art continue Due in questions. and the significant open Rochelle? to and post-acute to declare and market North technology, care returning and mitigate to have ownership. will business potential I'd the with of how and in goal which to continue align of work. will and business, streamline the committed actions our this sales the American related realize will the too In We'll impact to to which additional the profitability to specific frame cost morning. efficiencies to our to to which of call and business. our we previously mobility impact The time our and reduction, simplify their time to drive change, to the plan. for achieving These thank regard pace current long-term

Operator

with [Operator from we'll first question Securities. Instructions] CJS And hear our Labick Bob

Bob Labick

bidding a could you if reimbursement kind of you reimbursement in I wanted if help to bit has dynamic? talk sounds rates is of for understand the - itself transition, or think different just a changes. explain and transitory a the itself drawdown it or and the if we looking you market start short-term correction like and is more us an so I with - of or that has products little the the national could If therefore there's a changed if ahead if this the competitive inventory guess this change market sell our rates the changed for

Matthew Monaghan

last reimbursement. have just essentially we update for no the way will change in provider reimbursement see area. in been seek awarded Really that single the bid to from to out the areas each change a respiratory availability came Thursday, legislative previously which CMS The in exclusively be

our those area the they rural to these populated extent conducting recently are to hesitating into of expect takes that other make to business So before some but they that begin in sparsely then and will each new And there equipment they imagine that be purchases if providers incumbent had areas bid coming incumbent been providers bid conduct bid bid assume see business because the share best there's this we somewhat coming in densely populated than new all are next big to it’s they entrant are you be some in in The no should those areas serve a year. it what are likelihood can areas who entrants areas. probably is into reasonable the these providers bid have lose where an going not easier case probably area, business more any, respiratory. the to will provider

and small it’s out both hesitating The work temporarily So in each on areas bid new of of scale big in incumbents to and on until they is purchases we out. make equipment get each we try the to providing suppress just going balance who for new entrants take they how may equipment. a settle area. to first of new quarter think takes on That long sales could bid it respiratory result or portion of before beyond those investments equipment some a dynamics depending

CMS but believe question? with Does forecasting X already came quarter. in we very was no sales its out that on much baked summer, making that view final that We your was November was consensus have what of line the into and industry guidance in what accurately way that’s in so third late whether rule answer quarter the declining third

Bob Labick

that’s no helpful. Yes,

back So it those year resumption at of at speak then first so in should next the be the and to some market whatever be to sounds would sales would normal kind end? like of point in half to levels the but expect disruption you

Matthew Monaghan

it's Yes, right.

into new of providers but still to need needs still I users market market rate the is coming some rate. the is and a think buy at equipment a replacement therapy, stable number consistent that there end at

these provider this short-term is areas. as just think I bid mix there is in a a hesitance each of shift urban in

Bob Labick

do you tariffs other about final some place in may the obviously the mitigate to or tariffs. big able the then you be competitive? talk and help rules things the you I are once then to know that topic of And potential Can remain impact guess

Matthew Monaghan

precise could EBITDA outlet whether they short-term remain what on the and tariffs short-term the we get of significantly and worse public listeners $XXX the within to in all are get which thing for committed this be better able you to we as short-term reasonably measures we’ll challenge quarter million time the EBITDA in plan million entire is significantly but is raw depending short probably in a version the of media this nature over period that material resourcing the of and assume not aware to read, Yes, leading $XXX of undertaking that best some us maybe have. impact suppliers time to reassess be on too certain like we we’re

up. all raw However, domestically that’s that’s sourced imported and material material raw gone have

this too. going and design at hate continue overseas marketplace in time, materials we of and that of goods make North we lot tariff to view materials to something to are all the cases looking America not of goods themselves, more our semi change something and we've however by be convert we economic the it’s of may bit can. going changes but exempt see if in raw sure into that to lower be not benefit through value all try schedules we’re a the that productivity are to be in policy to we from us at certain a from harmonized do tariffed or do or period can appropriately and products the then will finished and from as kind normal which imported U.S. punitive then contracted maybe little long-term, duty supplier looking added domestic takes what had course cost to a So the we that products national a on positive use finished to sourced We an come that can what tariff to in of houses is and raw customs to to longer for that factory do a finished alternative that being the in We codes look effectively. inappropriately due at a operate the dynamics to being moving that

Kathy Leneghan

And guarantee no applied for the exclusions frame. only X will approved tariffs, that rounds time we've is first those of one-year be an also for exclusion on but there's and good

Matthew Monaghan

taken. could into our that were other which subject become no goods X, changes that XX% the finished of a we turn products into by to XX% are many September, In January tariff a elements tariff, if go

in tariffs addition, suggested January. of we are In go the states for are then being get if much believe may quickly. that impact tariffs At time, same other together broader away heads rather

back their are the match slowly. that rate who is what is of domestic with figure that to these those still producers, levels all difficult to more to for out Thus, time raised the is decay prices have at prices tariff more dynamics unfolding. we're same import However, normal trying

Bob Labick

And then queue. last from me, jump back I'll in one

with get comfortable expressed You and sheet that transformation. the remain through liquidity and the you still balance to

You're some just the tell near-term that which or us sound obviously so, over X - headwinds quarter profitability. or reaching talking push there how next will - like obviously, higher out, about

year us cash beyond? the tell how you year, thoughts and on you your sheet balance can about into and mentioned you Obviously, feel So this flow? going next

Matthew Monaghan

lot that, much may and period that's has, confident Sure. customer of CapEx. good to And little sheet transition reasonable extra had also. including also fourth absorbed was move, feel quarter time. up a the and that million, change sales an also same France incremental from there. the in thought We good get $XX America, National straightened Competitive bit. should that Sweden, million $XX We we ultimately this year, Switzerland through sales capital but bit as we flow working hedged this inventory respiratory. that change little dampen of long more We forecast manufacturing transformation it dampen might a an of consumed do and and cash in worth a to going XXXX, usage expect. take a liquidate We quarter's of comfortable the that liquidate Bidding quarter think for transition due The the will good a and our didn't which in slight as decline to XXXX did of we - us will be then which a That's balance the will relationships, we've be to outlook and take once prolonged as to cash guided that inventory of transformation this has respiratory products we're North we'll inventory, it and of or

more one-time people in don't will that, relatively a comment different we but consumed know, think, So do unfortunately not on end working in basis. give but number It change temporarily, capital term, I to Kathy, due we we've those short to events. that? million be, the cash on two $XX wanted digestible might permanent you guidance a that as the somewhat year, I have here

Kathy Leneghan

No, I think you're right.

I good inventory, inventory. obviously, think the is

a So matter time we into convert cash. it's when can just of that

And so off spend. have being to on numbers. why it in the got not not very would fourth to roughly the said just that level. Previously, diligent we that brand will the XXXX for spending which spending. guidance to we that spend probably gave $X with million advertising is going we quarter, cash we're happen slightly that we would but the at are We're the be awareness there. were out our million money direct-to-consumer $X in POC we We've But

manage So very cash make well. we things can are sure that looking we to the at

Matthew Monaghan

end customers the hopefully there, we'll still about is we talking million, term lot under in ability similarly see next, how of compelled stabilize and soon those objectives. achieve somewhat, market we be feel to - and and our plans to competitors to very in $XXX going us, as to our Bob, comfortable get the we'll see North American let's revising and long say, XX a the to we be the options still tariffs in react, days And with are as how

Operator

Matthew we'll move KeyBanc. with to on And Mishan next

Matthew Mishan

mentioned is health some I you - the care what start of you're just with you to you mean you consolidation - customers also seeing first, - seen release. you do that consolidation by have The What or want expect consolidation? in

Matthew Monaghan

that North American definitely operating their by strong the terms with on doing of the to to side. Private market. how increase owned are make seen Both. complex great rehabilitation vision customers of provision great managed really a some of have, the the more consolidation complex products customers focused of sharp their in that Those rehab operate country their in There's but We've products and enable share things equity real should good the are ours, driving partners extent unique their effectively. success and the give technology end-user we we cost not great we also businesses can them through to technology. clients to on we're only to teams have

So in space. everyone highlight way. should wanted But that the that complex folks to rehab customer concentration we there's for win

dynamics good products, those their brand to bringing we're will the the to partners right think extent our have reason. market have We in are same sure customers the for We products only We're as in great and services, of have strong facility. their durable value in think that when there. they to the marketplace to allied make And to carry them a continuing it's that those care strive leverage concentration disposable in but large-scale space people end out but post-acute distributorships, long-term we our products the kind we consumable the to we distributors. care and you customers also to not provide put wanted with platforms differentiate make their aware of that that

Matthew Mishan

then, extending the calls $XXX out are line the EBITDA? XQ to make at normalized And a time sure long-term want pathway to about I point? million was That I - around of now What Are I'm that this you saying I've the of just on just and today bunch been so jumping 'XX understand. not far. sure. fully past you

Matthew Monaghan

Yes.

So to here. on happening consequences version transparent, outlook what simple and the too just to understand it's of based is other we tariffs And fast think a is we the be really have place in to revision, put on What raise don't people. simply is we could where we our a call on that our today's risk there's some but flag wanted tell next to be. fact

of So scenarios. here are a couple

marketplace. the immediately something the are one tariffs election away say, significant change and to that Let's taken happens today's after has

million former were million $XXX in next to could close to instant assume, get probably hand, $X of still at go periods of on outcome. become usually to $X However, are and then that put heads different the state to that That our And of same down that EBITDA together that tariffs the the take tariff plan. prices time a of XX%. that finished same XX% over the decay at back back and into on outcome are outcome the more substantially of a list, that than And not million by time. if of procured competitors other don't us a amount relatively X level less months have at a time. small to we would If we year, may the a already goods will negative impacting than

do it. our get us broader simply, in there then outcome remains we plays same have effect things X is be $XXX tariffs can X, the internal as and November days just great those year-end XXXX range a business after B. A to over are or the outcomes or so here come are of where the And XX towards days, potential get over I on in of have assumptions to right to We XX that to our to whether decide that out, days that that million see our to reflect up into our business viable Ends in we for geographies we'll But what forcing enough how next plan and next that confidence stay XX we can effect. participate. going be

on that rate run plan, meet Our to million $XXX target. to commitment is on try EBITDA

the described we're next be get there. XX days, reviving in going to As the to pathway

Operator

with And Sidoti next Sidoti Company. we'll move Jim to &

Jim Sidoti

other that material? goods are competitive purchased had you raw the be suppliers because only on I want to purchase from materials, Are on disadvantage clear So that you you tariffs that raw tariffs. the just the a saying finished

Matthew Monaghan

materials Tariffs less-than-finished affecting raw and are goods.

impact September. yet finished isn't which to have come a the tariffs Something raw I'm not goods of on the list. into that quite material like electric the schedule here. listing in echo But beyond motors, are

if is be China extent. any not you in close we extent finished this or tariffs And a XXXX. affected therefore, So our to they roughly goods, would to by September as recall, will competitor buying facility

it be a agile at point So American at disadvantage. there's supplier, significant time would this potentially which responsive North least of

Jim Sidoti

aluminum what is at steel? are tariffs And is or material the specific moment it impacting raw it other

Matthew Monaghan

freight of expediting goods before up lot lots people would aluminum. Steel the of that two and continue of in actuators, freight. importation and and costs Is soaking is of really reasons and And I the capacity tariffs up. say escalate. driving freight cost to a the world freight impact then of motors the

So all are us. costs for driving those

Jim Sidoti

before back think XXXX those And you starts and think should with that it levels. you to weeks that itself another historical Is reimbursement, be markets few to regards correct? work come out, by will to

Matthew Monaghan

any or is introduced exclusively Thursday the but Reimbursements an update those from - to is CMS changes the bidding level bid award-winning bid actually, prior X, was and afternoon. January effective price a bid bid been big provider unchanged the areas those the away, winner, now for areas X, impact to tiny relatively going will reimbursement prior rule qualified reward a have legislation CMS, allow all effective to the January But low at that CMS formerly auction. which relatively with their to making unchanged. few seek last in awarded remain the

quarter, coming XXXX - XXXX to because it into out going those It other first is, settle until a for least won't So will out, no have share. be all And will up day predicting. those. are the entrants good but potentially that at think way the the days, before keep there's bid areas incumbents take I to problem really open I won't on their And of settle a quarter January.

Jim Sidoti

next And bidding period occur? will when when is the

Matthew Monaghan

from Essentially two years January.

Jim Sidoti

there's advantage to you're because roll from right? So customers to bid XXX% no guarantee your keep now, market, two really years the not the as of putting going bids,

Matthew Monaghan

codes source this anyone nonexclusive in the XX% cost. Well, the zip have the were basis award North half to on been and awarded of in of of at other, the a sole low Only reimbursement already that districts America rural scenario. seeking spending sort CMS is more scenario

effectively operate is January, way. this the country that In country already the of all will way. operating half So

X think happen I how get from in time the by seems be it could future, like fashion but market So to in a familiar we things years could operates similar now, other the which the very too. forever

Jim Sidoti

what I'm now, don't no saying? reason But two years from source, to you lower if is there's any have bid whole

Matthew Monaghan

and market has bids at too well the that accept predict be that values. dynamics scenarios, higher some CMS than in lowest would can't I relief those suggestions although may been historical there provided Yes.

out in of some I versus discussion and starting there maybe as care at to of provision areas, a looked rural urban cost care, So play think in will is relief, they've that difference all provide the the to and make months or if then they holds that alternative that additional year By from gets they've could now changes. closer, U.S., the XX no date scenario. from date if now be harmonized CMS as the

Operator

And remarks. that turn closing Monahan session. today's over or this will At the call additional question-and-answer conclude time, Matt would to I with to like any back

Matthew Monaghan

Lois, There's company we're in a investor's marketplace, about for managing We very we appreciate a you in have And can on interest continuing to time to today's attention and are Lois. going touch. in for day. be forward you you, the and through lot follow-up listening and coordinate our dynamic questions, thinking your and available which call. I, good and on Thank and our Kathy these Thank look times. how to

Operator

conclude your We for today's thank call. that And you participation. will

INVACARE (IVCRQ) 6 Nov 182018 Q3 Earnings call transcript