U.S. Markets closed

Edited Transcript of IVC earnings conference call or presentation 6-Aug-19 12:30pm GMT

Q2 2019 Invacare Corp Earnings Call

ELYRIA Aug 8, 2019 (Thomson StreetEvents) -- Edited Transcript of Invacare Corp earnings conference call or presentation Tuesday, August 6, 2019 at 12:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Kathleen P. Leneghan

Invacare Corporation - Senior VP & CFO

* Lois Lee

Invacare Corporation - Director of Treasury and IR

* Matthew E. Monaghan

Invacare Corporation - Chairman, President & CEO

================================================================================

Conference Call Participants

================================================================================

* Christopher Cook Cooley

Stephens Inc., Research Division - MD

* Matthew Ian Mishan

KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst

* Michael Stephen Matson

Mizuho Securities USA LLC, Research Division - Analyst

* Robert James Labick

CJS Securities, Inc. - President & Director of Research

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Invacare Second Quarter 2019 Conference Call and Webcast. After the management overview, we will open the call to questions. (Operator Instructions) This conference is being recorded on Tuesday, August 6, 2019.

I would now like to turn the call over to Lois Lee, Invacare's Director of Treasury and Investor Relations. Please go ahead.

--------------------------------------------------------------------------------

Lois Lee, Invacare Corporation - Director of Treasury and IR [2]

--------------------------------------------------------------------------------

Thank you, John. Joining me on today's call from Invacare are Matt Monaghan, Chairman, President and Chief Executive Officer; and Kathy Leneghan, Senior Vice President and Chief Financial Officer.

Today, we will be reviewing our second quarter 2019 financial results and providing investors with an update on our transformation. To help investors follow along, we have created slides to accompany this webcast. For those dialing in, you can find a link to our webcast slide presentations that we will refer to during today's call at invacare.com/investorrelations. Further information can be found in our SEC filings.

Before Matt begins, I'd like to note that during today's call we may make forward-looking statements about the company that by their nature, address matters that are uncertain. Actual future results may differ materially from those expressed in our statements today due to various uncertainties. And I refer you to the cautionary statements included on the second page of our webcast slides and in our first quarter earnings release. For an explanation of items considered to be non-GAAP financial information that will be discussed on today's call, such as constant currency net sales, constant currency SG&A, free cash flow, adjusted EBITDA, and adjusted net loss, please see the notes in the appendix of our webcast slides and in the related reconciliations in the earnings release posted on our website.

I will now turn the call over to Matt Monaghan.

--------------------------------------------------------------------------------

Matthew E. Monaghan, Invacare Corporation - Chairman, President & CEO [3]

--------------------------------------------------------------------------------

Thank you, Lois, and Good morning. In the second quarter we made good progress against our transformational goals and we delivered broadly improved financial results. We are reaffirming our 2019 and 2020 guidance today and we'll talk more about our plan.

On slide 4, you will see we improved in all the key consolidated performance metrics during the second quarter, progressing towards our long-term targets. Consolidated constant currency net sales grew for the first time since third quarter 2015. Consolidated constant currency net sales increased 2.9%, excluding respiratory products, where we expected softness in North America as a result of previously announced reimbursement changes, and where, despite anticipated declines in respiratory sales, margin still improved.

Consolidated mobility and seating net sales grew 5.5% on a constant currency basis due to strong customer demand. Net sales in Europe grew 4.2% where mobility and seating sales group 11.2%. In North America, mobility and seating units increased at above market growth rates and margin improved, offset by adverse pricing mix.

Within North America mobility and seating, our power mobility business was up robustly with declines in other product areas due to limited portfolio trimming of legacy products late last year and competitive pressures in some smaller sub-segments. We expect new products and other actions will improve revenue growth in the coming quarters, which I will discuss in more detail in a few moments.

All the while, we continue to emphasize a culture of quality and regulatory excellence as part of our core values. Consolidated operating loss improved by more than 33% with North America showing a significant improvement of $6 million or 83%, consolidated adjusted EBITDA increased $5.2 million, returning the company to positive result. Improvements in operating loss and adjusted EBITDA were driven by reduced SG&A expense, improved gross margin, despite foreign exchange headwinds, and previous restructuring actions taken in 2018.

Lower SG&A expense in the first half was due to actions implemented in 2018 in both Europe and North America. These actions will help simplify how we do business, improve customer experience and will enable us to be more competitive to drive additional sales growth. We will continue to improve business processes and reduce costs.

Free cash flow improved nearly $25 million compared to last year and compared to first quarter this year, resulting in positive free cash flow of $300,000. This significant improvement was due to planned reductions in working capital and lower operating loss.

We achieved all of this in a very dynamic international trade environment with escalating tariffs and significant unfavorable foreign exchange rates. We are still evaluating impact of the tariffs announced last week. We expect our previous actions would mitigate the majority of any new negative impact.

Overall, we're pleased with the strong improvement in our results. We continue to execute our transformation plans and believe we were on the right path to sustain this positive trend. As a result, we remain confident in our outlook for the remainder of the year, expecting normal seasonality to additionally improve results and profitability and cash flow in the next few quarters.

Turning to Slide 5, let's review the keys to success for the second half the year. Starting with North America, we're focused on returning the segment to profitability. As demonstrated by our results, we've made great strides with more to come. Our augmented commercial leadership team is fully engaged to drive profitable sales growth across all product lines.

Importantly, we are bullish about our growth opportunities in mobility and seating and are well positioned to accelerate sales and increased adoption. We realized above market unit growth and higher margins with revenue adversely affected by price and mix among the product subcategories.

As we progressed further with our planned supply chain actions and process improvements in the coming quarters, we will be increasingly able to drive share gains with revenue growth at improved margins.

We also expect our strong pipeline of new mobility and seating products will help improve mix and drive growth. The pipeline includes our new Sit-To-Stand power seating system, the SMOOV manual wheelchair power add-on already launched in Europe and our new bariatric manual wheelchair which recently won a 2019 Red Dot Award for product design excellence.

Lifestyles product sales have performed well and respiratory product sales were lower than prior year, are performing better than expected. When coupled with continued process improvements, we expect to realize improved gross margin, lower SG&A expense and enhanced profitability during the second half.

In Europe, we continue to have good performance and as guided expect continued net sales growth in 2019. In mobility and seating, new products and seasonal buying patterns are expected to drive stronger sales. And in lifestyle, newly introduced products such as the NordBed, Invacare Stand Assist and Birdie Evo patient lifts are expected to provide a sales boost as well.

We have plans to simplify how we do business in Europe and strengthen profitability. Within Europe, we expect further improved gross margins as our France operation normalizes with consolidated volume from planned transfers and new product introductions.

Turning to Slide 6, the path to reaching or 2020 long-term goal remains unchanged. We have a diversified plan with contributions from different regions, product lines and many opportunities to improve business processes.

Over the next 18 months, we see a strong opportunity to drive top line growth with continued commercial execution, new products and simpler customer interactions. This will be done along with systems improvements and the streamlined supply chain that will reduce costs and improve competitiveness.

We expect that some of these actions will be profitable sales growth and lower costs to achieve our objective of $85 million to $105 million of adjusted EBITDA run rate by the end of 2020.

I'll now turn the call over to Kathy Leneghan to discuss the performance of the segments and additional financial results for the second quarter.

--------------------------------------------------------------------------------

Kathleen P. Leneghan, Invacare Corporation - Senior VP & CFO [4]

--------------------------------------------------------------------------------

Thanks Matt. Before we get into the numbers, I want to remind you that beginning in the first quarter of 2019, we revised our segment reporting with the former North America HME and IPG segments being unified into a single operating segment called North America, and the former Asia Pacific segment now being reported as part of All Other. We revised our segment reporting to more accurately reflect how the businesses are managed and how performance is assessed.

Turning to Slide 8, reported net sales decreased 4.2%, while constant currency net sales increased 0.6% with strong growth in mobility and seating, offset by expected declines in respiratory products. Excluding respiratory products, constant currency net sales grew 2.9%.

Consolidated gross margin, including respiratory products, increased 20 basis points to 27.6%, primarily driven by lower freight and material costs, partially offset by unfavorable foreign exchange.

Constant currency SG&A improved by $2.8 million or 3.8%, driven by restructuring actions implemented in 2018 and lower product liability costs. Operating loss improved by $2.3 million to $4.5 million, primarily related to reduced SG&A expense and partially offset by lower gross profit, higher restructuring costs, and unfavorable foreign exchange.

GAAP loss per share was $0.38 as compared to $0.50 last year and adjusted net loss per share was $0.31 as compared to $0.41. Importantly, free cash flow was positive $300,000, a significant improvement of nearly $25 million due primarily to reduced working capital and lower operating loss. Adjusted EBITDA also returned to positive territory of $3.6 million, an improvement of $5.2 million, driven by reduced operating loss.

Turning to Slide 9, during the second quarter, reported net sales in Europe decrease 3.5% compared to the same period last year due to strong foreign exchange headwinds. Constant currency net sales increased 4.2%, driven by an 11.2% increase in mobility and seating products.

Operating income increased $300,000 or 5.8% due to constant currency net sales growth, offset by unfavorable sales mix and unfavorable foreign exchange. The unfavorable impact from foreign currency translation was $800,000 in the quarter.

Moving to Slide 10, North America reported net sales decreased 4.3% and constant currency net sales decreased 3.9%, largely impacted by an anticipated decline in respiratory product net sales of $4.4 million or close to 24%. While mobility and seating sales dollars declined after a narrow set of product discontinuations, we otherwise saw strong unit growth during the quarter.

Gross margin increased 150 basis points due to improved product mix, resulting in better margins in every product categories and lower freight expense, despite the negative impacts of tariff and related material costs increases of approximately $400,000. Operating loss improved by $6 million or nearly 83%, primarily due to improve gross margin and reduced SG&A expense.

Returning to profitability remains central to our transformation and we are making strong progress against this objective as demonstrated by the quarterly results.

Turning to Slide 11, reported net sales in All Other decreased 10% and constant currency net sales decreased 3.9%, impacted by a slowdown in reimbursement in New Zealand as a result of the government's fiscal year end. Operating loss increased $3.1 million, primarily driven by the decrease in net sales and increased corporate stock compensation expense.

Moving to Slide 12. Free cash flow was positive $300,000, a significant improvement of nearly $25 million compared to last year and sequentially, primarily due to reduced working capital and lower operating loss.

While we expect significant improvement in adjusted EBITDA in the second half of 2019, as compared to the first half of the year, we anticipate higher restructuring costs and capital expenditures that are supportive of our transformation. And therefore, for the full year 2019, we continue to expect free cash flow at our previous guidance of at or favorable to usage of $25 million.

Total debt of $299 million, excludes operating lease obligations of approximately $21 million that were capitalized on the balance sheet as a result of the adoption of the new FASB lease accounting standard effective January 1, 2019.

The company's credit facility remains undrawn. The company believes that a return to a positive adjusted EBITDA driven by operational performance, cash balances on hand, and expected free cash flow will support the company's transformation plans and enable the company to address future debt maturities.

On Slide 14, we continue to make progress towards meeting our full year 2019 goals. During the second quarter, we realized improvement in every key consolidated metrics with constant currency net sales growth, gross margin expansion, lower constant currency SG&A expense, reduced operating loss, higher adjusted EBITDA and positive free cash flow generation.

Although, year-to-date adjusted EBITDA is only $5.1 million of our full year guidance of at least $20 million, we expect performance to accelerate in the second half of the year due to typical seasonality of sales, the normalization of the French production transfer, supply chain initiatives to expand gross margin and realizing the benefit of cost reductions. As a result, we have full confidence in attaining our guidance of adjusted EBITDA in 2019.

Regarding free cash flow. We expect free cash flow to be consistent with our previous guidance to be at or favorable to usage of $25 million. The second half 2019 free cash flow is anticipated to be impacted by the timing of cash collections from expected sales growth, as well as higher capital spending and restructuring costs that support the transformation, which should be offset by a lower net loss and inventory reductions. Based on our visibility into the transformation and the trends we are seeing, we are confident we will meet our 2019 goals.

I will now turn the call back over to Matt.

--------------------------------------------------------------------------------

Matthew E. Monaghan, Invacare Corporation - Chairman, President & CEO [5]

--------------------------------------------------------------------------------

Thanks, Kathy. In summary, we continue to strengthen the business and execute our plan to deliver significant improvements throughout the remainder of the year and in 2020. I'm confident in our ability to meet our 2019 guidance and our long term objective of the $85 million to $105 million of adjusted EBITDA run rate by the end of 2020. We appreciate the continued support of our shareholders and associates through this process.

Thank you for taking the time for the call this morning. We'll now take questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) We will now take our first question from Matthew Mishan of KeyBanc.

--------------------------------------------------------------------------------

Matthew Ian Mishan, KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst [2]

--------------------------------------------------------------------------------

Could you go a little bit further and talk about the pricing and mix issue you're seeing in North America mobility and seating? My sense is that you guys were building depth in that portfolio for a larger, more specialized sales force. Is that strategy not working?

--------------------------------------------------------------------------------

Matthew E. Monaghan, Invacare Corporation - Chairman, President & CEO [3]

--------------------------------------------------------------------------------

No, it's actually working pretty well, Matt. Thanks for the question. At the end of last year, we had some legacy manual products that we wanted to renovate and make space in our portfolio. We discontinued a number of those. They were relatively minor. I don't think we thought we were going to skin our knee with those. Turns out in second quarter, after we had gotten through the inventory of those, it did turn out to be a headwind for us. But we've got great new products in the pipeline, and before too long, we'll have an even stronger replacement. So that was really it.

On the power side, we were very positive about the unit uptake, the margin improvement. And overall, the supply chain improvements have driven margin in the category. I would say the other item is a new power device with a more simplified seating system has been a really strong seller in the quarter. And I think our sales team was out with a lot of excitement and emphasis of that product, turned out to be a lower ASP, lower margin product. And that was also a bit of a mix shift for this quarter. We think temporary, it's a great product, but it's part of our full portfolio and we'd expect that to get back to normal levels where as unit sales growth, margin and revenue expand in following quarters.

--------------------------------------------------------------------------------

Matthew Ian Mishan, KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst [4]

--------------------------------------------------------------------------------

And then moving to the respiratory business. What do you see as like the long-term outlook now for that business as you've had a little bit more time to assess some of the changes in reimbursement and the impacts it's had on that portfolio?

--------------------------------------------------------------------------------

Matthew E. Monaghan, Invacare Corporation - Chairman, President & CEO [5]

--------------------------------------------------------------------------------

Couple of things have happened. I'd say -- I group them in external and internal. I think, externally, as this wave of new metropolitan reimbursement has kind of gone through the marketplace, it will stabilize at new levels. We think that's probably close hand, and we can deal with that positively going forward.

Internally, this downturn from a year ago in volume has forced us to really look closely at how we spend money, how we develop products, what makes us easy to do business with. And you can see the interesting results that despite being down 20% to 30% in the last few quarters, profit from that segment is actually up. So we look forward to the market coming back in a more normalized fashion, which we anticipate happens in the second half of this year as fleet owners and operators start planning for the winter flu season. But if -- even if it's late coming back, we expect to be continued to strengthen that marketplace. And then lots of new products in the pipeline over the medium term that will help us stay viable and easy to do business with for our great respiratory providers.

--------------------------------------------------------------------------------

Matthew Ian Mishan, KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst [6]

--------------------------------------------------------------------------------

And then lastly, I mean, your business is much more concentrated now in Europe. As you start -- and it's been nice to see the sustained momentum there over the last several quarters. But as you start thinking about like, Brexit, how are you planning for it? Have you seen any kind of pull forward from some of your customers to get ahead of it? And kind of -- and it seems like a large issue to kind of address?

--------------------------------------------------------------------------------

Matthew E. Monaghan, Invacare Corporation - Chairman, President & CEO [7]

--------------------------------------------------------------------------------

That's interesting question. Obviously, there's no firm answer, but it seems like we're all speeding towards an outcome here pretty shortly. I think we, like lots of companies, put some inventory in the U.K. a number of quarters ago when it was thought then to be close at hand, just to prevent any cross-border issues from disrupting supply chain. We have not had to add any inventory increase for that purpose lately. We do have a facility in Wales, which continues to be a great facility for us in a bed and sleep surface part of the market. We do some wheelchair business there. It doesn't support all of the U.K. It does export some things in the balance there with our forecast on foreign exchange really -- is very manageable. I don't know Kathy were there comments you'd make. For us, it's not a huge strategic shift at this point.

--------------------------------------------------------------------------------

Kathleen P. Leneghan, Invacare Corporation - Senior VP & CFO [8]

--------------------------------------------------------------------------------

No, and to your point, earlier in the year, we did add inventory into that facility anticipating that Brexit would happen earlier in the year than what -- that the current timing is. But we wouldn't anticipate that we'd have to add any more than that what we have there.

--------------------------------------------------------------------------------

Matthew E. Monaghan, Invacare Corporation - Chairman, President & CEO [9]

--------------------------------------------------------------------------------

Thanks, Matt.

--------------------------------------------------------------------------------

Operator [10]

--------------------------------------------------------------------------------

We'll now move on to our next question from Chris Cooley of Stephens.

--------------------------------------------------------------------------------

Christopher Cook Cooley, Stephens Inc., Research Division - MD [11]

--------------------------------------------------------------------------------

Maybe just 2 or 3 quick ones for me. If I'm not just follow on, Matt. As we think about the North American mobility and seating business, could you remind us the headwind created by the legacy manual products that you've exited in terms of the impact not only to the 2Q, but also how we should think about in terms of what you have to hurdle here in the back half? Then I have just 2 quick follow-ups.

--------------------------------------------------------------------------------

Matthew E. Monaghan, Invacare Corporation - Chairman, President & CEO [12]

--------------------------------------------------------------------------------

Yes. We don't normally break that level of detail out. But as we were looking at how the quarter developed this year, we saw that what we thought was going to be a relatively minor product discontinuation had some bigger results. I think it really blunted the very favorable business that we had in the power side. I think as we look to the second half of the year in North America, we expect that power to continue to accelerate for more time in the market with existing products. Plus, we have some really exciting new power mobility products, which we think will overwhelm any headwind that remains from our legacy products. And then it won't be too many quarters before we have an entirely new line of manual products that are especially exciting. Some of those are starting to come out now in Europe and we've had really great feedback from the marketplace and end users on utility of the products and how novel these are.

So I think, in the short term, we probably can overcome this in the third quarter, because third quarter is normally an accelerating quarter for us, same with fourth quarter. Shouldn't -- it will be a little bit of a deduction from overall growth, but the net should be positive. And then next year, I think, it will be solved.

--------------------------------------------------------------------------------

Kathleen P. Leneghan, Invacare Corporation - Senior VP & CFO [13]

--------------------------------------------------------------------------------

And so mobility and seating growth in North America was down about 2.6% on a constant currency basis, which is roughly about $800,000. This was a piece of that that, and not the majority of that. So that just gives you a realm of the maximum that it could have possibly have been. But it wasn't the maximum amount, or the majority of the amount of the decline of the $800,000. It was more related to the mix issue that Matt spoke about earlier on the power wheelchair side of the house. Yet, we had nice growth on the volume side.

--------------------------------------------------------------------------------

Matthew E. Monaghan, Invacare Corporation - Chairman, President & CEO [14]

--------------------------------------------------------------------------------

We had some good sales enthusiasm for our lower priced, lower margin product in power, which we think as in the portfolio, people understand, it will get back to a normal level of emphasis from our commercial team. So that will balance out. And then we have done few little product subsegments where there's some competitive dynamics going on that we also think we'll get ahead of here in the second half of the year. So that should move forward.

--------------------------------------------------------------------------------

Christopher Cook Cooley, Stephens Inc., Research Division - MD [15]

--------------------------------------------------------------------------------

And then if we, I guess, just shift gears a little bit just about looking at the portfolio. You highlighted you'll continue to adjust the portfolio going forward in your path to the long-term adjusted EBITDA guidance. And when I look at your 4 key metrics for the quarter, if we excluded North American respiratory, you're essentially up 5.5%. So you're in that mid-single digit organic growth. Clearly, the adjusted EBITDA margin would be much higher than where you were as would cash flow. I guess, I'm going to beat the proverbial dead horse here. But what additional metrics do you think you need to see here in the back half of the year to kind of further evaluate the North American business? Are there changes that we've all perceived as being structural that maybe you think are actually more temporal in nature? Are there ways to further drive leverage there?

--------------------------------------------------------------------------------

Matthew E. Monaghan, Invacare Corporation - Chairman, President & CEO [16]

--------------------------------------------------------------------------------

Yes, I think I'll start and then Kathy can follow up. I think second quarter for us was getting a lot of things in order and making sure shareholders understood what was going on with the balance sheet and cash management. We feel very comfortable about how we executed on working capital improvements as we had predicted. And we want to see things growing. So really, everything grew, except where we skinned our knee here with this product discontinuation, a little bit of mix shift in power mobility. I think, in the second half that ought to continue pretty strongly and we like the overall portfolio in North America, which should generally improve.

As Kathy mentioned in her remarks, through the year, we've only accumulated $5.1 million of EBITDA towards our $20 million, but that's seasonally actually pretty appropriate and what we're looking forward in third quarter. And I think all investors should look for in third quarter. That's really got to be the EBITDA growth quarter. This was like cash flow containment. Make sure there aren't any problems in the underlying machinery. Third quarter and fourth quarter also had to be EBITDA growth quarters -- growth to the top line, good margin, and EBITDA expansion and that's what we expect. Thanks, Chris. Appreciate it.

--------------------------------------------------------------------------------

Operator [17]

--------------------------------------------------------------------------------

We now move on to our next question from Bob Labick of CJS Securities.

--------------------------------------------------------------------------------

Robert James Labick, CJS Securities, Inc. - President & Director of Research [18]

--------------------------------------------------------------------------------

I wanted to dig in a little more on North America, obviously terrific progress on reducing the losses there. And you had a few stats on it. But maybe talk about, is it more -- was it more from higher gross margin or lower SG&A and how sustainable were those changes? And then also, can you reduce the losses sequentially from here or was this just a particularly good quarter, I'm talking for the back half of the year? How should we think about the losses going forward in the balance of '19?

--------------------------------------------------------------------------------

Matthew E. Monaghan, Invacare Corporation - Chairman, President & CEO [19]

--------------------------------------------------------------------------------

So I think, pretty good balance between gross margin improvements that are sustainable. Listeners will remember from prior quarters, we've talked about headwinds from tariffs, headwinds from freight, freight variances, from product moves to different plants. Those things are all abating them. Plus some works to do in France, but generally, much better there. And then cost reductions that you would expect a manufacturing enterprise to be undergoing to improve gross margin has improved.

And then on the SG&A side, we did a number of things in 2018 which are still annualizing into benefits, plus what was announced in 2019 also and I think between the 2, all sustainable, and balance. I don't know Kathy if you'd answer that really more color?

--------------------------------------------------------------------------------

Kathleen P. Leneghan, Invacare Corporation - Senior VP & CFO [20]

--------------------------------------------------------------------------------

No, I think you're right. The positive impact that we saw in Q2 was from both gross margin expansion as well as SG&A cost reductions. We'd anticipate the gross margin would continue that favorable mix to continue for the remainder of the year on the SG&A side of the house. Much of the reduction in SG&A were cost reduction actions that we took last year. So I think the SG&A structure is probably where it needs to be at. Although, we'll continue to look at it as we evolve the business. And as we go into next year from an ERP perspective, that should also give us an opportunity to reduce and streamline on the SG&A a side of the house. But I wouldn't anticipate that large step down until 2020.

--------------------------------------------------------------------------------

Matthew E. Monaghan, Invacare Corporation - Chairman, President & CEO [21]

--------------------------------------------------------------------------------

Yes, we still have some big chunky things to do to streamline our business processes that make us especially easier to do business with. That should yield some benefits on sales growth and lower costs as well. And those things would come as Kathy mentioned, probably in the middle of next year. But, look, we're always looking at saving costs and being more efficient along the way.

--------------------------------------------------------------------------------

Robert James Labick, CJS Securities, Inc. - President & Director of Research [22]

--------------------------------------------------------------------------------

And then in terms of just seasonality of North America, I mean, Europe is pretty pronounced. But given the consolidation of the prior segments into North America, and the change in the portfolio -- underlying portfolio, how should we think about the seasonality of North America, second half versus first half on a -- from a revenue perspective?

--------------------------------------------------------------------------------

Matthew E. Monaghan, Invacare Corporation - Chairman, President & CEO [23]

--------------------------------------------------------------------------------

I think third and fourth should generally be bigger than first, second combined. I think there is a fair amount of consolidation in the marketplace. So we're going to see some more pronounced trends, I think, emerging over this year, probably next year and into the future. Then you take respiratory, which has some seasonality that goes with winter flu season, and lifestyle, which is relatively level. Maybe there's a little bit of peak around a federal fiscal year-end.

But I think, overall, we'll see an acceleration this year for us. Seasonality will be added to new products that are going to continue to come out in third quarter, and especially in fourth quarter. And then first, second, third and fourth, I think, next year also. So we'll be looking at a seasonal curve that repeats every year, but it will be amplified by our productivity, our ease of doing business, which should attract more customers, and our increasing portfolio pretty different new products. So I think it's a bit of seasonality and a bit of just more good things that we're adding to -- into care mix.

--------------------------------------------------------------------------------

Robert James Labick, CJS Securities, Inc. - President & Director of Research [24]

--------------------------------------------------------------------------------

And then just to kind of follow up on your answer there and for my last question. One of the big questions we've been getting certainly is, we expect the second half improvement. And, mathematically, just picking a number, you need $8 million a quarter in EBITDA to hit your guidance -- round numbers and stuff. And typically, you've been seasonally a lot slower in the first half than the second. So if you hit the 8 in 8, just call it and finish your year at or above guidance, which is terrific. What happens in the first half of next year? What will change with seasonality to continue to grow or not tip as much off of that level first half next year versus second half this year?

--------------------------------------------------------------------------------

Matthew E. Monaghan, Invacare Corporation - Chairman, President & CEO [25]

--------------------------------------------------------------------------------

Well, I would want next year to have an improved respiratory business globally, and especially in North America we were anniversaried beyond the decline that we've experienced that with new products and kind of a restoration of normalcy. That should go away. So the first quarter decline should be less pronounced. And then I think our new product portfolio, which we'll be launching some really great products in the first and second quarter, will kind of mitigate the first half next year, but then those things should be amplified in the second half of next year, especially because of Europe seasonality.

So, I think, when we model this out, we have a general positive line going up to the right in terms of time and profit or time and sales, overlaid with this negative sine curve of seasonality, which leads to this sawtooth curve that kind of goes up and positive to the right and everything we do well that helps first half, just does even better in the second half and there's more demand generally in the marketplace. Okay, thanks Bob.

--------------------------------------------------------------------------------

Operator [26]

--------------------------------------------------------------------------------

We will now move on to our next question from Mike Matson of Needham & Co.

--------------------------------------------------------------------------------

Michael Stephen Matson, Mizuho Securities USA LLC, Research Division - Analyst [27]

--------------------------------------------------------------------------------

I appreciate the comments around your ability -- that you feel comfortable that you can address future debt maturities. But I guess, I'm just wondering where do you feel like you really need to be from an EBITDA and cash flow perspective to do that comfortably? Do you feel like you've got to get to your targets that you've laid out? Or is there some wiggle room there that if you don't reach those targets, you still think you can refinance the debt that you have?

--------------------------------------------------------------------------------

Matthew E. Monaghan, Invacare Corporation - Chairman, President & CEO [28]

--------------------------------------------------------------------------------

Yes, good question, Mike, thanks for that. We've been spending a lot of time getting ourselves smart about the options. The absolute #1, 2 and 3 priority for restructuring our debt and capital structure is EBITDA performance. So, of course, the higher the EBITDA we have, and we're very confident being in our range in the future, that gives us a fair amount of flexibility. If for some rational reason it was slightly less, let's say, there are interim or different mixes of things that the company could undertake to still make that equation work out. If it were known to be short-term in nature, there are generally counterparties that will help you with short-term fixes to that. But we feel very strongly about our cash position now, the forecast of the balance sheet over the next 18 months and our progress on EBITDA, which makes for pretty normal refinancing as we get into the time to do that. I don't know Kathy have certain comments?

--------------------------------------------------------------------------------

Kathleen P. Leneghan, Invacare Corporation - Senior VP & CFO [29]

--------------------------------------------------------------------------------

No, I think that's absolutely true, and we would also consider the cash that we have on the balance sheet, the availability that we have on the ABL. But as Matt mentioned, we are trying to get smarter on what our options would be, so that we can address that first tranche of that, which would come due in 2021.

--------------------------------------------------------------------------------

Michael Stephen Matson, Mizuho Securities USA LLC, Research Division - Analyst [30]

--------------------------------------------------------------------------------

And then, with regards to the increased tariffs, I understand your point about your ability to offset the cost. But I think part of what you said in the past when the tariffs originally went into place was that it was kind of putting you at a bit of a disadvantage because, your components were being tariffed, whereas some of the finished products your competitors were importing were not. So with the 10% tariffs that were recently introduced or announced, so I guess they haven't gone into effect yet. But assuming that they do, does that then start to help level a field with your -- some of these competitors that you have that make finished goods in China?

--------------------------------------------------------------------------------

Matthew E. Monaghan, Invacare Corporation - Chairman, President & CEO [31]

--------------------------------------------------------------------------------

Yes, I don't know exactly, and I'm sure that the competitors who are disadvantaged will do like we did and try to make a better supply chain decisions to lessen the impact of those things. I think worst case it's kind of the same or similar to where we are now. But chances are they're probably better. I think generally, we think the more that the harmonized tariff codes include finished goods, the more the playing field will be leveled. And that'll be good for us with so much verticals supplied in North America. Still a little early to see, but we're also very confident for -- with $5 million to $7 million of estimated unmitigated impact that we saw last year that it's essentially gone away and that those are pretty robust solutions that should serve us well going forward.

--------------------------------------------------------------------------------

Michael Stephen Matson, Mizuho Securities USA LLC, Research Division - Analyst [32]

--------------------------------------------------------------------------------

And then just finally on upcoming competitive bidding around, 2021. Just curious if you're hearing any kind of feedback from customers about where the bid could come in, how much reimbursement decline you're expecting?

--------------------------------------------------------------------------------

Matthew E. Monaghan, Invacare Corporation - Chairman, President & CEO [33]

--------------------------------------------------------------------------------

No. I'd say, no, early reads other than just speculation. I would say, the Browns getting into the Super Bowl is a little more certain than where the National Competitive Bidding is going to come out next year. So we'll see how that goes. I think it's still early days.

--------------------------------------------------------------------------------

Operator [34]

--------------------------------------------------------------------------------

It appears there are no further questions at this time. I'd like to turn the conference back to Mr. Matt Monaghan for any additional for closing remarks.

--------------------------------------------------------------------------------

Matthew E. Monaghan, Invacare Corporation - Chairman, President & CEO [35]

--------------------------------------------------------------------------------

Okay. Thank you for your time and attention on today's call. Kathy, Lois and I are happy and available to take any follow up questions today. Lois Lee can coordinate that. Her contact information is on our website. Thanks very much.

--------------------------------------------------------------------------------

Operator [36]

--------------------------------------------------------------------------------

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may know disconnect.