Invacare Corporation – 
A company with a $2 billion dollar goal and a solid strategy to get there

 

Healthcare
Medical Equipment and Supplies
NYSE: IVC

  Invacare Corporation

One Invacare Way
PO BOX 4028
Elyria, OH 44036
Phone: 440-329-6000

   

A.Malachi Mixon III
Chairman and 
Chief Executive Officer

Interview conducted by:
Walter Banks , Co-Publisher  

CEOCFOinterviews.com
March 2001

  BIO OF CEO 

A. Malachi (Mal) Mixon, III is Chairman of the Board and Chief Executive Officer of Invacare Corporation (IVC:NYSE), the leading worldwide manufacturer and distributor of medical products for the home health care market.  2000 sales were $1 billion.  Mal led a leveraged buy-out of Invacare in 1979, when sales were $19 million.

Mal serves on the boards of The Sherwin-Williams Company (NYSE), The Lamson & Sessions Company (NYSE) and Primus Venture Partners, a leading Midwest venture capital firm.  He also is a founding investor in MCM Capital Corporation, a Cleveland leveraged buyout company; and RoundWood Capital, a Cleveland limited money management partnership.  Additionally, Mal has been an active investor in several successful Cleveland-area ventures that became public companies including Royal Appliance Manufacturing Company (NYSE), STERIS Corporation (NYSE), and NCS HealthCare, Inc. (NASDAQ).

In September 2000, Mal was honored as the Master Innovator at the Anthem Blue Cross and Blue Shield / Small Business News Business Conference.  In 1999 and 1992, Mal was awarded the International Business Executive of the Year Award by The Cleveland World Trade Association.  He was honored by the National Multiple Sclerosis Society with the Hope Award for distinguished civic and community service and the Students in Free Enterprise (SIFE) organization presented him with the America’s Free Enterprise Legend Award in 1997.  Mal was inducted in 1996 as a charter member into the Cleveland Business Hall of Fame.  The Paralyzed Veterans of America honored him with the 1996 Corporate Patriot Award in recognition of his significant commitment to the PVA and to all those who have sacrificed in defense of our country.  The National Society of Fund Raising Executives Greater Cleveland Chapter honored Mal in 1995 as Outstanding Philanthropist.  In 1992, he was awarded the Inc. Magazine Master Entrepreneur of the Year Award for Northeast Ohio.  The Harvard Business School Club of Cleveland honored Mal with the Dively Entrepreneurship Award in 1984.

A graduate of Leadership Cleveland (1986), Mal's current civic activities include serving as Chairman of the Board of Trustees of The Cleveland Clinic Foundation and the Cleveland Institute of Music.  He also serves on the boards of Case Western Reserve University, Cleveland Tomorrow, Students in Free Enterprise, and the Fred A. Lennon Charitable Trust.

Mal is originally from Oklahoma, and is a graduate of Harvard College (BA) and Harvard Business School (MBA).  Between degrees, Mal served four years in the U.S. Marine Corps, including a year in Vietnam, attaining the rank of Captain.  

About
Invacare Corporation

Invacare Corporation is the world's leading manufacturer and distributor of home medical products and enjoys the leading market share position in a more than $6 billion worldwide market. In the 21 years since the current management has been in place, the company has grown from a small U.S. company with two product lines, 350 employees and $19 million in annual sales, to an international company that offers over two-dozen product lines in more than 80 countries, employs more than 5,500 people throughout the world, and achieved $1.0 billion in sales for 2000. The company's world headquarters are in Elyria, Ohio, located outside of Cleveland. 

CEOCFOinterviews - Mr. Mixon, could you give us a brief history of Invacare Corporation?

Mr. Mixon: "This is my 22nd year of running the company. We started as a LBO 21 years ago.  I led a local group of Clevelanders and purchased Invacare for approximately $8 million dollars from Johnson and Johnson.  Sales at that time were $19 million dollars; we had one million dollars in common stock; and we started out basically in a single product category of standard wheelchairs. We went public in 1984 and switched to the New York Stock Exchange a couple of years ago. In 2000, we had a billion dollars in sales, with a market cap over a billion dollars and have set a new goal of becoming a $2 billion dollar company in the next five years. We are the global leader in the manufacture and distribution of innovative medical products used in the home care environment. About a third of our business today comes from outside of the United States."

CEOCFOinterviews - What is your product line right now, and how many products do you have?

Mr. Mixon: "We have an extremely broad product line. You should think of us as providing everything you need when you leave the hospital and go home. We are market leaders in the manufacture of medical beds and associated products, including bed rails, hydraulic lifts, trapeze and bedside commodes. In addition, we have hundreds of other products to help you ambulate, including walkers, crutches and other mobility aids. We are the leading manufacturer of wheelchairs, both manual and motorized, and were the first company to introduce microprocessor controls to wheelchairs.  For example, Christopher Reeves uses one of our chairs  - the kind of chair that is controlled by your mouth. We are also in the respiratory field, dealing with sleep therapy, aerosol therapy and oxygen therapy. Our products enable people to mainstream.  They are not just for those who may be ill or convalescing. For example, We make products for competing in wheelchair sports. In fact, athletes using our equipment won some seventy-five medals at the 2000 Sidney Paralympic Games. We make special chairs for racing, quad rugby, tennis and basketball. We offer a very wide variety of products."

CEOCFOinterviews – Is your product line built through your own research and development or through acquisitions?

Mr. Mixon: "In general, new products are created through internal development.  However, we have made about 35 acquisition throughout the history of the company.  Most of them were very small firms that had a product idea that we were able to explore and take to the market. We are heavy on internal product development. Nevertheless, in the last few years we made a couple of pretty sizable acquisitions. One was Scandinavian Mobility in Europe that gave us more geographical expansion. The other was a public company called Suburban Ostomy - which we have since renamed the Invacare Supply Group. Suburban was a leader in the distribution of medical supplies (soft goods and disposables) which we do not manufacture. Because of our strong distribution power into the home care channel, we thought it made sense to use that distribution strength to sell products we do not produce."

CEOCFOinterviews - How much of your revenue goes towards R&D?

Mr. Mixon: "We are currently spending approximately 2% of sales.  We have a goal to expand that to 3% of sales in the next five years. That may not sound like a lot; however, it will take us from $20 to $60 million dollars in research and development for home care products."

CEOCFOinterviews - Are you developing any new products at this time?

Mr. Mixon: "We have just introduced a new third generation line of power wheelchairs.  We unveiled the product to our sales force in the last two weeks of February and started shipping March 1^st, 2001. I believe that it is going to be very popular. We also have a totally new product called VentureÒ HomeFillÔ.  HomeFill is a totally self-contained oxygen system that you plug into your wall. The device allows you to take an oxygen concentrator - a well known product in which we have industry leadership - and bleed oxygen from that device into a compressor which forces the oxygen into a bottle.  By doing this, you fill oxygen cylinders for ambulatory use while at the same time receiving stationary oxygen for home use. This allows consumers to remain independent while eliminating the need for costly visits by home medical equipment providers. We have always been a new product development oriented company, and we have many new and exciting products coming down the road.

Although wheelchairs still make up about 40% of our revenue, and we expect to maintain our leadership in that category, we are continuing to diversify into other product lines. We are especially interested in expanding in the respiratory product category and are always looking for totally new products for home use. For example we have a product that helps treats decubitus ulcers (bedsores) – a system that you put on a home care bed."

CEOCFOinterviews - Looking to become a $2 billion dollar company: how do you plan to achieve that?

Mr. Mixon: "It is not a pipe dream. Our target is to expand the equipment business 10% a year, while increasing the disposable business, currently a $120 million dollar business, at 15%. If we do that, internal growth will take us to about $1.6 to $1.7 billion. In addition, during the next five years, we anticipate generating $500 to $600 million dollars in free cash flow. This will provide the needed flexibility to further consolidate our industry. Historically we have completed acquisitions for 1.0-1.1 times sales.  This suggests we should be able to acquire another $500 million in sales. Therefore, the combination of our equipment, disposables and acquisitions will get us to that $2 billion dollar level. During that period, we have said publicly that we expect to grow our earnings per share 13-15% a year."

CEOCFOinterviews - Do you have to expand your customer base to reach that goal?

Mr. Mixon: "We think growth can be accomplished through our current customer base with normal expansion into new products and product categories. However, one major change in our approach is that Invacare has set out to build consumer awareness and improve our brand identity.  This should help expand the market, and create demand for our products. As an example, one of our customers recently sold our products on QVC.  It was interesting to see the brand on TV and to watch several of the items sell out. We are reaching out to consumers through TV ads, direct mail, and major developments on our web site. We think there is a lot of untapped demand out there.  People just don’t know enough about these products. In any case, I am not assuming any major change in the way our products are sold."

CEOCFOinterviews - How is your e-commerce approach to sales going?

Mr. Mixon: "Our customers are more and more becoming web enabled, and we see that as an opportunity to reduce transaction cost. In addition, in order to attract consumers to our site, we recently signed an agreement with the Cleveland clinic. The clinic will provide medical content on our site covering all the various disease states and reasons people need our products.  For example, you will be able to go to our site, look up multiple sclerosis and find out the latest treatment regiments, what research is going on and get all the information about that disease.  Plus, you can see the products we provide to help you with that medical condition. We are going to keep the site very attractive for consumers, and if they want to buy something, we will transfer them live to one of our provider-customers. We are hopeful that if you talk to our customers they will say: Invacare not only provides the best products, delivers them faster that anyone else, has the premier sales and service organization, but they are actually creating business for me - bringing consumers into my store locations or to my web site.  That is the direction we are headed.  We’re trying to build our brand, stimulate demand, and create new value for our customers."

CEOCFOinterviews - What would you consider your main channel of distribution?

Mr. Mixon: "Our main channel by far, about 82% of sales, is to the home care provider.  We sell our products to home medical equipment providers who in turn sell or rent directly to the consumer. We sell about 8% of our product to nursing homes and about 3% to the government. We sell about 6% to distributors that service hospitals and drug stores. In addition, we are starting to experiment with retailers, especially Wall Mart. They have a planogram of some of our products in their pharmacies. About one percent of our products now go to retail."

CEOCFOinterviews - What is your current cash and credit situation?

Mr. Mixon: "At year end we were borrowing approximately $390 million dollars, down from $450 million at the end of 1999.  We ended 2000 with our debt to total capitalization just under 53%.  As we discussed earlier, we are entering a period of strong cash flow and expect to generate $500-$600 million in free cash flow over the next five years. Our target is to work our debt levels down to 40% debt to total capitalization.  Besides reducing debt, the cash will be used to make further acquisitions. We are always on the prowl for opportunities and would expect to make one or two acquisitions this year."

CEOCFOinterviews - How will your growth, and all of that activity affect your margins?

Mr. Mixon: "We think our margins will gradually improve over time with part of the improvement driving earnings growth and the remainder going towards expanding the business. We see a much-improved pricing environment today as opposed to the crazy pricing situation we encountered over the last several years. Moreover, one of our competitors, Graham Filed is in bankruptcy, and Sunrise Medical (another major competitor) recently went private. We are steadily reducing our cost, leveraging our SG&A, and investing our profits into profitable growth opportunities."

CEOCFOinterview - Do you have any competitors that give you your run for your money?

Mr. Mixon: "Every company has competitors, and we have a number of them. However, I feel we are in the best position and have been for a long time. We do not take the competition for granted.  We are a very competitive company, and we know what it is like to be the underdog – that’s where we started. Yet, overall, we are the strongest company out there.  We are the most profitable; we have the strongest distribution system; and we are investing heavily in future growth through product development. Therefore, I think the outlook for the next five years is much stronger than it was five years ago.  This is particularly true given the government’s improving attitude toward health care. The Balance Budget Act of l997 was devastating to the industry. In the last two years the government has put some money back into health care, and our industry is benefiting from these changes. "

CEOCFOinterviews - Is there any final thought that you would like to share with your current shareholder as well as with potential investors?

Mr. Mixon: "We appreciate the support that our shareholders have given us over the years. When we went public in l984, the stock was at $2.75.  Today it is in the $38-39 range. I think of Invacare as a pillow stock - you buy us; put the shares under your pillow; and when you wake up in five years, you will be happy with your investment. Yet, I still think we are trading at a relatively low multiple for a growth company. The 2001 earning estimates on the street stand at $2.20.  We are trading at about 17 times those estimates.  I think we are a good long-term investment.  If someone wants to invest in a non-cyclical, recession resistant business that generates a lot of cash and is pursuing consistent quarter to quarter earnings improvement, Invacare is that kind of company."