Business Wire02.15.17
Maybe 2017 will be a better year for Invacare Corporation.
Net sales fell 8.3 percent in 2016, as the company executed the first phase of a multi-year, three-phase turnaround plan to re-orient its resources to a more clinically complex mix of products and solutions, particularly in North America. The shift aims to engage the company's technical expertise to provide greater healthcare value and sustainably improve its financial performance.
Key Financial Highlights for the Fourth Quarter of 2016
“The results of the fourth quarter show the combined impact of our strategic investments on top of sales decline. During the quarter, we accomplished a lot of the heavy lifting for this transformation. We on-boarded and trained a substantially new U.S. sales team at the same time we shifted product mix and discontinued a significant amount of non-core business," said Matthew E. Monaghan, chairman, president and CEO. "We launched new products and made substantial progress on our quality remediation related to the consent decree. Compared with 2015, which was better for cash flow and operating income, our 2016 results show the near-term impact of the investments required to re-orient our business. These investments are in the early phases of gaining traction, which we expect will show results later in 2017 and be more substantive in 2018. In the meantime, the company has begun taking actions to streamline operations and resize and reshape the organization, especially in North America, around its new business mix and size."
Key Financial Highlights for 2016
SG&A expense fell last year by decreased by 4.7 percent to $303.8 million from $318.6 million in 2015. Foreign currency translation decreased SG&A expense by $4.2 million, or 1.4 percentage points. Excluding the impacts of all the divested businesses and foreign currency translation, SG&A expense increased $2.2 million, or 0.7 percent, compared to 2015 primarily related to increased product liability and employment costs. The SG&A expense in 2015 included a write-off of costs related to a canceled legacy software program based on a change in the North America/HME IT strategy.
The company incurred restructuring charges of $2.4 million in 2016, principally due to severance costs in the North America/HME and Asia/Pacific segments. Restructuring charges incurred in 2015 were $2 million, principally due to severance costs in the North America/HME and Europe segments.
The company incurred net interest expense of $15.6 million in 2016 compared to $4 million in 2015. The net increase of $11.6 million was due to the convertible debt issuance in the first quarter of 2016 and, to a lesser extent, capital lease interest expense as a result of the real estate sale and leaseback transaction completed during the second quarter of 2015.
For the year ended Dec. 31, 2016, GAAP net loss was driven by lower net sales, reduced gross margin including higher warranty expense, increased interest, higher product liability expense, and restructuring charges of $0.08 per share ($2.4 million after-tax expense), partially offset by the positive impact from the gain on sale of GCM of $0.23 per share ($7.4 million gain) and net gain on convertible debt derivatives of $0.04 per share ($1.3 million gain). The net loss for 2015 included restructuring charges of $0.06 per share ($1.8 million after-tax expense) and increased amortization expense to write off bank fees related to a previous credit agreement of $0.02 per share ($0.7 million after-tax expense).
The increase in adjusted net loss last year was driven by lower net sales, reduced gross margin including higher warranty expense, increased interest, higher product liability expense, and restructuring charges.
Commenting on 2017, Monaghan said, "In the first quarter, we are beginning to shift to phase-two transformation activities in the North America businesses. We are well positioned to start capitalizing on the commercial investments that we made during 2016. Our new product pipeline is ramping up in every category, with more than 10 new products set for release in the complex rehab and post-acute care markets in 2017. In this next phase of transformation, we are shifting our focus to operational improvements including the realignment of our infrastructure and processes to drive efficiency and reduce costs. As an example, in January 2017, we announced a headcount reduction that will begin to align our organizational structure with our new sales level and drive simplicity. As part of this re-alignment, we announced the closure of our Kirkland, Quebec, facility, which while relatively small, represents another step toward optimizing our supply chain footprint. These changes are expected to result in annualized savings of approximately $6.6 million. In addition, we have submitted the specified design history files to the third-party expert for review per the June 2016 requirement of the United States Food and Drug Administration. And, we continue to make broader sustainable quality improvements throughout the business. The combination of these efforts is critical in moving us forward, particularly as we expect continued pressure from foreign exchange on our Europe segment and as we work to complete the remaining reductions in non-core sales during the first half of the year. The magnitude of Invacare's transformation is significant and fourth quarter financial results reflect this. We have a multi-year turnaround strategy, and we are committed to delivering on our long-term objectives."
Invacare Corporation, headquartered in Elyria, Ohio, manufactures and distributes home and long-term care medical products that promote recovery and active lifestyles. The company currently has 4,600 associates and markets its products in approximately 100 countries around the world.
Net sales fell 8.3 percent in 2016, as the company executed the first phase of a multi-year, three-phase turnaround plan to re-orient its resources to a more clinically complex mix of products and solutions, particularly in North America. The shift aims to engage the company's technical expertise to provide greater healthcare value and sustainably improve its financial performance.
Key Financial Highlights for the Fourth Quarter of 2016
- Reported net sales decreased 12.9 percent and constant currency net sales fell 11 percent compared to the fourth quarter of 2015. Excluding the divested Garden City Medical Inc. business, constant currency net sales slid 8.1 percent compared to the fourth quarter of 2015.
- Reported gross margin as a percentage of net sales from continuing operations was 27.9 percent compared to 28.5 percent in the fourth quarter of 2015. With adjustments detailed in the consolidated results, adjusted gross margin would have been lower by 0.1 of a percentage point comparing fourth quarter of 2016 to fourth quarter of 2015.
- Operating loss was $6.9 million compared to operating income of $1.5 million in the fourth quarter of 2015.
- GAAP loss per share from continuing operations was $0.54 compared to loss per share of $0.09 in the fourth quarter of 2015. Adjusted net loss per share from continuing operations was $0.46 compared to adjusted net loss per share of $0.09 in the fourth quarter of 2015.
- Free cash flow was negative $10.6 million compared to positive $28.6 million in the fourth quarter of 2015.
- Cash and cash equivalents were $124.2 million as of Dec. 31, 2016, compared to $138.4 million as of Sept. 30, 2016, and $60.1 million as of Dec. 31, 2015.
“The results of the fourth quarter show the combined impact of our strategic investments on top of sales decline. During the quarter, we accomplished a lot of the heavy lifting for this transformation. We on-boarded and trained a substantially new U.S. sales team at the same time we shifted product mix and discontinued a significant amount of non-core business," said Matthew E. Monaghan, chairman, president and CEO. "We launched new products and made substantial progress on our quality remediation related to the consent decree. Compared with 2015, which was better for cash flow and operating income, our 2016 results show the near-term impact of the investments required to re-orient our business. These investments are in the early phases of gaining traction, which we expect will show results later in 2017 and be more substantive in 2018. In the meantime, the company has begun taking actions to streamline operations and resize and reshape the organization, especially in North America, around its new business mix and size."
Key Financial Highlights for 2016
- Reported net sales decreased 8.3 percent to $1.05 billion and constant currency net sales slipped 6.7 percent compared to 2015. Excluding all divested entities, constant currency net sales fell 4.9 percent.
- Reported gross margin as a percentage of net sales from continuing operations was 27.1 percent compared to 27.4 percent in 2015. Excluding the impact of all the divested businesses, gross margin as a percentage of net sales for 2016 increased by 0.2 of a percentage point as compared to 2015.
- Operating loss was $15.2 million, which included a one-time gain of $7.4 million from the sale of GCM, compared to operating loss of $7.8 million in 2015.
- GAAP loss per share from continuing operations was $1.32 compared to loss per share of $0.82 in 2015. Adjusted net loss per share from continuing operations was $1.41 compared to adjusted net loss per share of $0.68 in 2015.
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Free cash flow was negative $66.7 million compared to positive $10.2 million in 2015.
SG&A expense fell last year by decreased by 4.7 percent to $303.8 million from $318.6 million in 2015. Foreign currency translation decreased SG&A expense by $4.2 million, or 1.4 percentage points. Excluding the impacts of all the divested businesses and foreign currency translation, SG&A expense increased $2.2 million, or 0.7 percent, compared to 2015 primarily related to increased product liability and employment costs. The SG&A expense in 2015 included a write-off of costs related to a canceled legacy software program based on a change in the North America/HME IT strategy.
The company incurred restructuring charges of $2.4 million in 2016, principally due to severance costs in the North America/HME and Asia/Pacific segments. Restructuring charges incurred in 2015 were $2 million, principally due to severance costs in the North America/HME and Europe segments.
The company incurred net interest expense of $15.6 million in 2016 compared to $4 million in 2015. The net increase of $11.6 million was due to the convertible debt issuance in the first quarter of 2016 and, to a lesser extent, capital lease interest expense as a result of the real estate sale and leaseback transaction completed during the second quarter of 2015.
For the year ended Dec. 31, 2016, GAAP net loss was driven by lower net sales, reduced gross margin including higher warranty expense, increased interest, higher product liability expense, and restructuring charges of $0.08 per share ($2.4 million after-tax expense), partially offset by the positive impact from the gain on sale of GCM of $0.23 per share ($7.4 million gain) and net gain on convertible debt derivatives of $0.04 per share ($1.3 million gain). The net loss for 2015 included restructuring charges of $0.06 per share ($1.8 million after-tax expense) and increased amortization expense to write off bank fees related to a previous credit agreement of $0.02 per share ($0.7 million after-tax expense).
The increase in adjusted net loss last year was driven by lower net sales, reduced gross margin including higher warranty expense, increased interest, higher product liability expense, and restructuring charges.
Commenting on 2017, Monaghan said, "In the first quarter, we are beginning to shift to phase-two transformation activities in the North America businesses. We are well positioned to start capitalizing on the commercial investments that we made during 2016. Our new product pipeline is ramping up in every category, with more than 10 new products set for release in the complex rehab and post-acute care markets in 2017. In this next phase of transformation, we are shifting our focus to operational improvements including the realignment of our infrastructure and processes to drive efficiency and reduce costs. As an example, in January 2017, we announced a headcount reduction that will begin to align our organizational structure with our new sales level and drive simplicity. As part of this re-alignment, we announced the closure of our Kirkland, Quebec, facility, which while relatively small, represents another step toward optimizing our supply chain footprint. These changes are expected to result in annualized savings of approximately $6.6 million. In addition, we have submitted the specified design history files to the third-party expert for review per the June 2016 requirement of the United States Food and Drug Administration. And, we continue to make broader sustainable quality improvements throughout the business. The combination of these efforts is critical in moving us forward, particularly as we expect continued pressure from foreign exchange on our Europe segment and as we work to complete the remaining reductions in non-core sales during the first half of the year. The magnitude of Invacare's transformation is significant and fourth quarter financial results reflect this. We have a multi-year turnaround strategy, and we are committed to delivering on our long-term objectives."
Invacare Corporation, headquartered in Elyria, Ohio, manufactures and distributes home and long-term care medical products that promote recovery and active lifestyles. The company currently has 4,600 associates and markets its products in approximately 100 countries around the world.