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Invacare Corp (NYSE:IVC)
Q4 2019 Earnings Call
Feb 10, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Invacare Fourth Quarter and Full Year 2019 Conference Call and Webcast. After the management overview, we will open the call to questions.

Investors and analysts interested in asking questions will need to dial-in as questions cannot be submitted via the webcast. For the first part of the call, all phone lines have been placed on mute. This conference is being recorded Monday, February 10th, 2020.

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

Lois Lee -- Director, Treasury and Investor Relations

Thank you, Jake. 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 fourth quarter and full year 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 presentation that we will refer to during today's presentation 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 fourth quarter earnings release.

For an explanations 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'll now turn the call over to Matt Monaghan.

Matthew E. Monaghan -- Chairman, President and Chief Executive Officer

Thanks Lois. Good morning to everyone on today's call. I'm pleased to say we ended 2019 on a strong growth [Phonetic], continuing to build on the momentum from earlier in the year and improved the business and achieve our annual financial guidance. Before Kathy and I get into our results, I wanted to take time to reflect on our progress in 2019 and on the path ahead in 2020.

Turning to Slide 4; in 2019, it was critical for us to improve operating results and cash flow and to take another significant step toward our long-term targets. I'm pleased to announce we achieved our guidance of generating at least $20 million of adjusted EBITDA and consuming not more than $25 million of cash.

For full year 2019, our total operating loss improved by 43% and total adjusted EBITDA of $28.7 million was an improvement of more than $22 million compared to 2018, driven by actions which streamlined business operations, reduced SG&A, and expanded gross profit. Importantly, our North America business strengthened with a 77% improvement in operating performance.

Free cash flow usage benefited from stronger operating results and reduced working capital primarily from lower inventory levels, which led to a nearly $45 million improvement compared to 2018, with a net results of consuming $8.1 million of cash compared to having consumed nearly $53 million of cash in the prior year.

While I'm encouraged by our continued progress, we didn't achieve everything we had set out to do in 2019 as net sales growth fell short of our expectations. To reach our full potential we will need profitable net sales growth in 2020 and we have many actions already under way to help us do that.

Turning to Slide 5, our strong 2019 full year performance was driven by key initiatives focused on product innovation and sales mix, process improvement, and expanding balance sheet flexibility. Starting with product innovation and sales mix, we made significant adjustments to our portfolio by discontinuing certain legacy manual wheelchairs and lifestyle products, focusing on more valuable products within our respiratory portfolio, and introducing new products in all categories, offering greater customer and clinical benefits.

The result of these actions was a decline of less than 1% constant currency net sales, overwhelmingly, as a result of the weakness in the respiratory market early in 2019 and due to intentional decisions in the second half of the year. This decline more than offset $10 million of growth in mobility and seating.

Even despite the significant respiratory sales decline for the year, financial results for the respiratory product line increased due to favorable mix, optimized costs, and improved industry leading product reliability. In total, the Company's gross profit improved by 70 basis points.

For the last several years, we've been focusing on building back our mobility and seating business. In 2019, our global mobility and seating portfolio had constant currency net sales growth of $10 million or 2.5% after changes in the manual and powered portfolio worldwide.

In Europe, mobility and seating's constant currency net sales grew 4.4% as a result of strong sales of the SMOOV power add-on. In North America, mobility and seating growth in powered mobility products is overshadowed by the year-long impact of discontinued older manual wheelchair models. Importantly, despite lower sales in North America in total, the region's gross profit improved by 200 basis points from the prior year.

Our product development teams continued to strengthen our portfolio. In 2019, we launched new products in every product category, in power and manual wheelchairs, in respiratory lifts, beds, and mattresses all which will help us drive incremental sales in 2020 and beyond as adoption grows.

In fourth quarter 2019 we debuted a very competitive center wheel drive power wheelchair with standing capabilities built with outstanding kinematics and specifically designed for Group III reimbursements in the United States, so more people can be funded for the basic needs. Already in the short time our new standing system has been in the market, it has been well received by customers and end users.

In addition, we launched the SMOOV power add-on in Europe which adds amazingly small, agile, and intuitive lithium-battery powered propulsion to manual wheelchairs. In various regions we added products to our lifestyle segment including a new bed system, a new lift and slings, and a new line of pneumatic mattresses for care of patients with fragile tissue conditions. Sales of these new products will expand globally in 2020.

Finally, in respiratory, we introduced the world's first portable oxygen concentrator with remote control, meeting FDAs new wireless technology requirements and giving clients the world's only truly hands free, battery powered, portable oxygen concentrators so people can continue living as actively and independently as possible. We expect these innovative new products will grow our business by providing greater clinical value to end users and even better financial options for our customers.

Beyond driving innovation, we made substantial business improvements in 2019. We streamlined our business to reduce cost, increase competitiveness and improve profitability. And particularly, we reduced constant currency SG&A by nearly $15 million, substantially mitigated the potential $7 million impact of tariffs and completed two plant consolidations in Europe that had been announced in 2018.

And in December, we announced the beginning of an additional large plant transfer in Europe that will consolidate our two main German operations into a single German facility by the end of 2020. Additionally, at the beginning of fourth quarter, we engaged in a strategic long-term program to modernize our IT infrastructure. This is essential to our continued business improvements for the benefit of customers, suppliers, and shareholders.

As previously discussed, this novel arrangement will enable us to execute the complete renovation to our IT infrastructures at no incremental in-period expense compared to our typical spending. Once completed, we will have a robust customer self-service platform which will simplify how customers transact with us and will improve customer experience with all the modern conveniences of typical e-Commerce site.

System will also provide state-of-the-art manufacturing and inventory function and a simplified reporting system. This new system will enable further streamlining of the business and ultimately, better financial performance.

We have a track record of managing through adversity and delivering meaningful improvements. In 2020 we will continue to look for additional ways to optimize the business. Finally, in 2019 we also improved our capital structure and strengthened our balance sheet.

In third quarter 2019, we reduced the total amount of debt outstanding by repurchasing $16 million of convertible notes at a discount to par. And in fourth quarter 2019, we extended the maturity of the balance of the 2021 convertible notes to a new maturity date of November 2024 at the same interest rate. These actions enhanced our financial flexibility as we continue our bed [Phonetic] business transformation.

Overall, I'm proud of our accomplishments in the past several years and definitely of those in 2019. In 2020, we will build further on these initiatives to realize our long-term goals.

Turning to Slide 6, the strong foundation we laid in 2019 allows us to focus on execution in 2020. In 2019, we launched many new innovative products but we, admittedly, weren't as effective commercializing them as we'd expected. In 2020, we have actions in place to rectify this and to accelerate sales growth by investing in sales and marketing talent, making our product launch programs more consistent, increasing the number of demo units, driving customer awareness, and reallocating spending to all of this while still lowering overall SG&A expense.

In mobility and seating, we will launch our new line of front-wheel drive and rear-wheel drive power wheelchairs during the first half of 2020, supplementing the power wheelchair with standing capabilities launched in the fourth quarter of 2019. Based on the timing of these new product launches, and the long quote-to-order cycle, we expect the financial benefits of these new products later in the year.

Sales in first quarter 2020 are expected to be flat compared to the first quarter 2019 and sales should accelerate throughout the year in line with the typical seasonality of our business.

Looking ahead we continue to expect interest in our entire respiratory portfolio. In the second half of 2020, we will begin launching a refreshed portfolio of stationery oxygen concentrators with improved performance, novel features, and a new level of low total ownership cost for providers.

Universally, we're seeing respiratory customers making value-based choices that reflect an appreciation of total cost of ownership which is good for Invacare branded products. We remain committed to serving the respiratory markets and are confident the business has a bright future.

Turning to process improvements, we will begin to realize the full year's benefit of the plant consolidations in France and the cost saving actions that occurred in 2019. In 2020, we're focused on the consolidation of two German manufacturing facilities which is expected to generate annual pre-tax cost savings of approximately $5 million when completed in the fourth quarter.

In addition, we plan to reduce global freight costs by partnering with third party logistics providers which will improve customer service and further expand gross profit. Finally the successful modernization of our IT infrastructure will improve customer engagement, increased visibility of global sales trends and inventory levels, and streamlined operations, all which will strengthen our financial performance. We expect minimal disruption as we go live in North America in 2020 and go live in Europe in 2021.

In summary, we have all the necessary building blocks in place for a successful 2020 and I'm confident in our ability to deliver sustained and improved performance.

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

Kathleen P. Leneghan -- Senior Vice President and Chief Financial Officer

Thanks Matt. Turning to Slide 8, during the fourth quarter, constant currency net sales decreased 2.1%, primarily driven by a decline in respiratory products. Gross profit improved a 130 basis points with growth across all segments, primarily as a result of favorable sales mix and lower material costs, partially offset by unfavorable manufacturing variants and foreign exchange.

Constant currency SG&A improved by 4.1% or $2.7 million, driven primarily by previously announced restructuring actions, partially offset by an increase in stock compensations and bonus expense. Operating loss was $3.8 million compared to a loss of $1.1 million in the fourth quarter 2018 as a reduction of $3.9 million in SG&A expenses was more than offset by an increase of $6.4 million of restructuring costs primarily related to the German plant consolidations and IT outsourcing. Free cash flow improved by more than 200% to $3.8 million and adjusted EBITDA was $13.9 million, an improvement of $7.9 million driven by lower SG&A expenses.

Turning to Slide 9, for the full year, mobility and seating constant currency net sales growth of $10 million was more than offset by an over $19 million decrease in sales of respiratory products. Excluding respiratory, constant currency net sales increased 1.2%. Gross profit improved 70 basis points which reflects the effective mitigation of approximately 5 million of tariffs, leaving less than 2 million of remaining exposure.

Constant currency SG&A improved by nearly $15 million due to restructuring actions taken throughout the year. Free cash flow improved by nearly $45 million or approximately 85%, driven by stronger operating results and reduced working capital. Adjusted EBITDA was $28.7 million, an improvement of over $22 million demonstrating that our transformation remains on track.

Turning to Slide 10, Europe constant currency net sales decreased slightly due to minor decreases in all product categories. While we believe the markets in Europe are healthy, we experienced slowness in Denmark in equipment sales, given the government's focus on refurbishment of products versus investing in new products. In addition, lower sales of lifestyle products in Sweden were the results of a delay in the timing of a tender being awarded. However, operating income increased by $4.4 million or almost 49%, principally due to improved gross profit from favorable material, freight, and manufacturing variances as well as reduced SG&A expenses.

These were partially offset by lower net sales and unfavorable foreign exchange of $900,000. For the full year, constant currency net sales increased 1.2%. The growth was driven by a 4.4% increase in sales of mobility and seating products, primarily due to the successful launch of the electromotive power add-on products. Operating income increased $3.5 million, despite the unfavorable impact from foreign exchange of $3.2 million.

Turning to Slide 11, North America constant currency net sales decreased 2.5%. We achieved growth in mobility and seating products of 2.8% driven by increased sales of powered mobility products, but this was more than offset by decreases in other products, including a more than 20% decline in respiratory. Excluding respiratory, constant currency net sales increased 0.8%.

Gross profit improved 140 basis points and was positively impacted by favorable material and freight costs as well as improved sales mix, partially offset by unfavorable manufacturing variances. Operating loss improved by over 96% or $7.2 million, primarily due to higher gross profit and reduced SG&A expense.

For the full year, constant currency net sales growth in mobility and seating and lifestyle was completely offset by decreases in respiratory. Excluding respiratory, constant currency net sales increased 0.1%. Gross profit improved 200 basis points and was positively impacted by favorable material, freight, and sales mix, partially offset by unfavorable sales volumes and manufacturing variances.

Operating results improved significantly by nearly $25 million or almost 77% as we realized the benefit of transformation initiatives which expanded gross profit and reduced SG&A expenses.

Turning to Slide 12, Asia-Pacific constant currency net sales decreased 14.5%, driven by lower sales of mobility and seating products due to payer process changes which temporarily affected funding in New Zealand. Operating loss for all other increased $8 million, primarily driven by increased SG&A expense related to stock compensation and bonuses as well as a decline in the operating profit for the Asia-Pacific business, driven by lower net sales and increased SG&A cost.

For the full year, constant currency net sales increased 0.4%. Operating loss increased $12.2 million principally due to the same factors that impacted the fourth quarter.

Moving to Slide 13, the Company generated free cash flow of $3.8 million in the fourth quarter of 2019, an improvement of $2.7 million, driven by stronger operating results partially offset by higher investments in capital expenditures. As of December 31st, 2019, the Company had 254 million in convertible debt outstanding and $80 million of cash on its balance sheet.

The revolving credit facility has remained undrawn for the last four years. The Company believes that continued generation of adjusted EBITDA driven by operational performance, cash balances on hand, and expected free cash flow will support the Company's ongoing transformation plans and enable it to address future debt maturities.

Turning to Slide 15, for the full year 2020, we expect the operating results consisting of; constant currency net sales growth of 2% to 4% for the full year, adjusted EBITDA of at least $45 million, and free cash flow generation of at least $5 million. The Company expects constant currency net sales growth in 2020 in combination with what is expected to be a typical year of seasonal sales variance by quarter.

As a result, sales are expected to be flat in the first quarter 2020 over the prior year with growth coming in later quarters amplified by new product introductions expected to be impactful in the second half of the year.

Adjusted EBITDA is expected to benefit from further process improvements and cost reductions to occur through the year, mostly in the second half after precedent work is completed. Stock compensation expense is expected to be similar to 2019.

And finally, free cash flow guidance assumes significant improvement in segment operating performance compared to 2019, partially offset by increased working capital to support growth especially in the North American mobility and seating products with an extended quote-to-cash cycle. We also anticipate higher capital expenditures and cash usage to fund restructuring actions, especially in the second half related to cost savings.

Free cash flow in the first quarter 2020 is expected to be similar to the first quarter 2019 and includes ERP related investments. These operating results are in line with previous guidance for run-rate adjusted EBITDA in the range of $85 million to $105 million by the fourth quarter 2020. The $85 million to $105 million run rate is not intended to reflect our full year 2021 guidance which we will provide during our fourth quarter 2020 earnings release.

I will now turn the call back over to Matt.

Matthew E. Monaghan -- Chairman, President and Chief Executive Officer

Thanks Kathy. We made substantial, durable improvements to our business in 2019 that resulted in significantly improved performance. We will continue to execute our plans to return the Company to profitability and increase shareholder value. The entire Invacare team of associates and I appreciate the continued support of our shareholders and I want to thank all of our Invacare associates who worked so hard to make Invacare strong.

Thank you for taking time this morning, we'll now take questions. Jake.

Questions and Answers:

Operator

[Operator Instructions] We'll begin with Bob Labick with CJS Securities.

Bob Labick -- CJS Securities -- Analyst

Good morning. Congratulations on a great quarter. Great job, great execution. So wanted to start with the Birlasoft and the IT outsourcing and ERP implementation. Obviously still a lot ahead and you're on track there. Can you just remind us of the roadmap for the next six to 12 months and where we stand on both of those things, you know IT outsourcing and then the ERP?

Matthew E. Monaghan -- Chairman, President and Chief Executive Officer

Yeah, those tend to go hand-in-hand. We really are in a process of turning over all of our IT infrastructure to Birlasoft so that they provide that back to us some service for the legacy systems. And then at the same time migrate from those legacy systems to new ERP systems. And it's not just ERP, it's lots of other software as you and others probably can guess through our dozens and dozens of elements of software that make a big enterprise work.

The objective for our migration this year is to complete the transfer of existing IT services to Birlasoft and at the same time to go live with an ERP system in North America by the middle of this year so that after the normal amount of hyper care and transition and getting to a steady state we end up simplifying our business, be easier to transact and more profitable as result of that before the end of this year in North America.

The template that we're using to define our processes is a global template. Team members from around the world are working on that now. That template, once it's done in North America, will be deployed in Europe at the beginning of next year and we have a few subsidiaries around the world that will catch up at various points when that makes sense. But the majority of North America will be now and Europe will be at the beginning of next year.

Bob Labick -- CJS Securities -- Analyst

Got it, great. And then jumping over to new products [Speech Overlap] thanks, going to new products, you talked about some new wheelchairs coming out this year. Could you talk a little more about; A, what differentiates them feature-wise, and then also as importantly, from a reimbursement perspective, you highlighted Group III reimbursement. Just expand on that if you can?

Matthew E. Monaghan -- Chairman, President and Chief Executive Officer

Sure. So, wheelchairs typically come in three drive varieties similar to cars I guess; front wheel drive, rear wheel drive, center wheel drive. There are reasons that those different modalities are of relative importance depending on a person's lifestyle and what they're doing. It's usually a combination of how much outdoor or indoor driving that they're trying to do, how big the space is they're operating in for a living or working or socializing, and how much hard or soft ground that they're trying to go on as a part of their normal day. And there are different trade-offs.

Probably and I'm going to estimate roughly 30% of the market worldwide is front wheel and rear wheel drive and those are markets where we either haven't had a modern product or a product at all since the consent decree having not refurbished our front wheel drive product as recently as 2014, I think.

So getting these products back out and refreshed is really important for Invacare addressing a big segment of the market where we didn't have the best products until now. But now, we believe the products we are bringing to market in those categories are at the top of the line in terms of performance and capabilities, modern aesthetics, and the kinematics that help the occupant move very smoothly and seamlessly.

An the -- at the end of last year -- at the end of third quarter we had clearance for our standing system which allows an occupant to come to a nearly vertical standing position as a normal able body would have with all sorts of intuitive and critical benefits. You can imagine the social benefits of being at eye level with other people around. But also bone strength is enhanced by loading bone, cardiovascular strength is enhanced by having a greater vertical rise in blood flow between the level of the heart and feet, and respiratory and digestive benefits occur also.

Not only was it important for us to come out with a great product that had great kinematics but was important for us to come out with a chair designed for the reimbursement system. Our chair is uniquely designed for Group III reimbursement, which is a level lower than the top competitor's reimbursement level which should mean it's easier to get patients funded by their insurance carriers for this essential benefit.

We're very excited about having set out to do that from the beginning of the product and seeing that now available in the marketplace today. It's truly is an issue with no compromises.

Bob Labick -- CJS Securities -- Analyst

That's great. And then just sticking with the wheelchairs. And I know that you're the only public stand-alone company in the space, it may be hard to speak about this, but could you -- if you can, can you discuss a little bit about the position -- your position on the formularies for some of the large wheelchair providers out there, some of your customers and how it stands this year versus the last few years?

Matthew E. Monaghan -- Chairman, President and Chief Executive Officer

I think it's a good question Bob. It's important for us to have our customers have access to our products so that their sales and clinical teams can make them available to their clients. And over the last four years or three years since the consent decree, we've been working hard to balance our internal costs which are getting better and better with what our customers need in order to hit their targets of deploying products to their markets.

This year, I think we have even better price position based on better and improving cost positions of our products and I think we have a lot of interest from all of our customers based on new products so we expect things to be even better this year. We have good relationships with all our customers worldwide and I think internally and externally we're mutually excited about the portfolio of new products that helps all of us and all of the clients out there worldwide who are looking for mobility solutions.

Bob Labick -- CJS Securities -- Analyst

Terrific. All right, thank you very much. I'll get back in queue.

Matthew E. Monaghan -- Chairman, President and Chief Executive Officer

All right, thanks Bob.

Operator

We'll now take our question -- next question and that will come from Mike Matson with Needham & Company.

Mike Matson -- Needham & Company -- Analyst

Hi, good morning. Thanks for taking my questions. I wanted to ask about the North American mobility and seating business. I don't know if you can disclose what the growth was there if you strip out the discontinued products. But with the powered wheelchairs I assume that saw significantly stronger growth than what the overall number was?

Kathleen P. Leneghan -- Senior Vice President and Chief Financial Officer

Yeah, it would have been, Mike. The growth in the total segment was 2.8%. We haven't really disclosed the specifics of how much was power versus manual. But as you noted, manual was down so the growth would definitely be higher than the 2.8%.

Mike Matson -- Needham & Company -- Analyst

Okay. Thanks and [Speech Overlap].

Kathleen P. Leneghan -- Senior Vice President and Chief Financial Officer

We saw nice successful growth on the standard [Phonetic] in the quarter, which was nice.

Mike Matson -- Needham & Company -- Analyst

Okay. And then, you know the revenue guidance, it's good to see the 2% to 4% constant currency but that's a fairly significant step up from where you are or were in 2019. So how -- what's your confidence level on the ability to deliver that, especially considering that it seems like it's going to be more kind of reliant on what happens in the second half of the year?

Matthew E. Monaghan -- Chairman, President and Chief Executive Officer

Yes, it's a good question Mike. I think this year there are a lot of precedent actions that we are executing in the first and second quarter so that that growth can happen later in the year. As we've talked about previously, we need to get this IT system in place and under way. We'll have many benefits, much better customer engagement by being simpler to do business with.

But it really will enable us to eliminate some of the other redundant capabilities we had and the inefficient way that we do business today with our legacy systems which are quite old and require a lot of manual work around to be as effective as we are. So those things can only really happen in first and second quarter which then gives us the ability to streamline our business and grow sales even more in the second half.

And then of course, as we continue coming out with new products in the year, especially with the power wheelchair and respiratory products that are going to come out through the year, those sales will occur naturally at the later part of the year. First quarter, as we mentioned earlier on the call, it could be the typical seasonal kind of flat. I think second, third, and fourth quarter should be much more interesting.

Your other question or part of it was around confidence. I think what we'll do in this year is absolutely within the bandwidth of what we have accomplished in the last couple of years and seeing what we did last year with new product innovation but lack of commercialization of those has us really already focus this year around meaningful steps to derive growth from new products and just have new products. We've got to really commercialize them well, and things are under way to make sure that happens.

Kathleen P. Leneghan -- Senior Vice President and Chief Financial Officer

And we're going to make additional investments on the sales side of the house as well as demo to help drive that revenue.

Mike Matson -- Needham & Company -- Analyst

Okay thanks. And then finally just on the convertible debt. So with the actions you took in the fourth or third quarter, I guess third and fourth quarter you reduced the outstanding portion of that first tranche '21, the two in '21 to about $61 million I think. So what are your plans for the remaining $61 million that's due?

Matthew E. Monaghan -- Chairman, President and Chief Executive Officer

Yes, so number one thing is focus on profitable growth and EBITDA enhancement which gives us increasing flexibility in normal commercial banking relations over time. I think in the meantime we'll look opportunistically at how to manage our cash, how to use all the facilities we have to manage that and hopefully investors appreciate that. We're looking at this based on the actions we took in 2019. I don't know Kathy, if you'd add anything to that?

Kathleen P. Leneghan -- Senior Vice President and Chief Financial Officer

No, I think that's -- the key is returning to profitable growth and generating positive cash flow will give us much more options on how to deal with it.

Mike Matson -- Needham & Company -- Analyst

Okay, great. Thank you.

Matthew E. Monaghan -- Chairman, President and Chief Executive Officer

Thanks Mike.

Operator

And now we'll take a question from Matthew Mishan with KeyBanc.

Matthew Mishan -- KeyBanc Capital Markets -- Analyst

Great. Thank you, once again, for taking the questions and good morning everyone.

Matthew E. Monaghan -- Chairman, President and Chief Executive Officer

Good morning.

Kathleen P. Leneghan -- Senior Vice President and Chief Financial Officer

Good morning.

Matthew Mishan -- KeyBanc Capital Markets -- Analyst

Hey, just bear with me on my math. I'm on the West Coast, it is really early right now. As I'm looking at the phasing of EBITDA, 3Q is typically your best EBITDA quarter and if I'm understanding the run rate correctly, you're thinking that you're exiting the fourth quarter with $21 million to $25 million of EBITDA. I mean is EBITDA flat in the first half and in the second half the majority -- the vast majority of the EBITDA for the year is generating?

Matthew E. Monaghan -- Chairman, President and Chief Executive Officer

Well, I think two things; we're expecting a normal seasonal profile and as you and others will remember, the quarter in 2019 stacked pretty aggressively toward the end of the year. In the first quarter, we accumulated under $2 million worth of EBITDA. By the second quarter we had accumulated $4 million or $5 million. And we went from $4 million or $5 million by June 30th to $28.7 million by the end of the year.

So we have the capability to do that. The seasonality in 2020 should be similar, and it's also going to be different in 2020 as we expect an even stronger fourth quarter relatively from cost savings and new products that are happening earlier in the year. So maybe the third and fourth quarter relative balance to each would be a little different. We expect a pretty strong back half of the year.

Kathleen P. Leneghan -- Senior Vice President and Chief Financial Officer

But you're right, I think it is going to -- as you see, the seasonality in 2019, 2020 would have similar seasonality.

Matthew Mishan -- KeyBanc Capital Markets -- Analyst

Okay, and as you think about that 2% to 4% growth, how should we be thinking about that like North America versus Europe, and now that you're giving guidance. On top of that what is -- what would be the expected FX headwinds in 2020 as well?

Matthew E. Monaghan -- Chairman, President and Chief Executive Officer

We continue to expect reasonably similar constant currency sales growth in Europe. The big change this year should be more biased toward North America and really bringing both of those regions up to that 2.4% with products that we have coming out end up going global in this year and commercialization efforts are under way in both regions to make sure that they're very effective. Markets are healthy in both places. Probably the biggest incremental increase would be in North America. It has been a long time since we've been at that level of revenue growth.

Kathleen P. Leneghan -- Senior Vice President and Chief Financial Officer

On the FX side of the house, you know the euro roughly at a 1.10 [Phonetic] range and that really is where our plan is based right now. So as long as that stays pretty much in that range, we should be good. We do enter into hedge contracts on both sales as well as the cost side of the house to protect the company against FX and those are normally entered into at the average of Q4 -- it would be at the Q4, 2019 rate. So obviously we don't have a crystal ball as to where FX is going to go, but right now, based on where we see the rates, we think we're OK.

Matthew Mishan -- KeyBanc Capital Markets -- Analyst

So the report reported an organic constant currency growth about the same?

Kathleen P. Leneghan -- Senior Vice President and Chief Financial Officer

About the same rate now, yes.

Matthew Mishan -- KeyBanc Capital Markets -- Analyst

And then just looking at the working capital, what was the -- and then maybe I am just looking it wrong -- at what was the driver of the $18 million increase in accounts payable?

Kathleen P. Leneghan -- Senior Vice President and Chief Financial Officer

You're looking at the balance sheet, the reported balance sheet?

Matthew Mishan -- KeyBanc Capital Markets -- Analyst

Yeah.

Kathleen P. Leneghan -- Senior Vice President and Chief Financial Officer

Yeah, you can't really look at the reported balance sheet, because there would be FX within that. So if you take a look at our working capital for the full year, you would see the main driver of the reduction is in inventory. That's really where it's driving. You can't go after the balance sheet.

Matthew Mishan -- KeyBanc Capital Markets -- Analyst

And last question is a little bit of a bigger picture question. We've seen a lot of companies talking about connectivity and data, making a transformation to digital health. You guys were ahead of this with LiNX a couple years ago. Where are you at with LiNX now and are customers becoming more interested in that kind of offering?

Matthew E. Monaghan -- Chairman, President and Chief Executive Officer

Yes, it's an interesting point and we're pleased to have had three years of development out of the marketplace with that having been launched in August of 2017. We have the same technology go in our oxygen concentrators also in 2017. And as we get out and talk to customers about managing total cost of ownership and making sure that the right modality of their solutions are in the hands of reimbursed clients that's becoming more and more interesting and more products that we have out there.

The neat thing I think that's occurred in the last year is probably very cost effective ways to put technology on products and have been the easily compliant with whatever regulatory regime is in effect in the market that's being served. So we see that expanding across our portfolio in the future and are expanding more swiftly.

LiNX have given us a really good platform to understand how to do the normal kinds of things that make it interesting day to day, not only for end users but providers and the clinicians who are working with patients. So that gives us a head start I think on going forward.

Matthew Mishan -- KeyBanc Capital Markets -- Analyst

Right. Thanks, Matt and Kathy.

Matthew E. Monaghan -- Chairman, President and Chief Executive Officer

All right, thank you Matt.

Operator

And Chris Cooley with Stephens has the next question.

Chris Cooley -- Stephens Inc. -- Analyst

Thank you, good morning. I appreciate you taking the questions. Just a couple for me.

Matthew E. Monaghan -- Chairman, President and Chief Executive Officer

Good morning Chris.

Chris Cooley -- Stephens Inc. -- Analyst

Hey, good morning everyone. Just a couple for me, if we could maybe get a little bit more behind the results in respiratory for the course of the fourth quarter and then use that as a launching pad to think about the expectations for growth in this coming year. I guess two things specifically I'd like to start with, could you maybe help us kind of compare and contrast the growth in both the POC offering and let's maybe add HomeFill with that versus traditional concentrator business. I know you had bundled that exiting the second half of last year. I'm just kind of curious about what you saw there? What you learned from that? And then, how you affect growth going forward in that category? Then I've got a quick follow up. Thanks.

Matthew E. Monaghan -- Chairman, President and Chief Executive Officer

Yeah, sure. You know the respiratory market has been probably the most dynamic market that Invacare serves over the last few years with changes in reimbursement and strong shifts in different modalities. The battery powered portable oxygen concentrators is an important part of our offering. And we've tried to be out there with a solution that's as innovative as we think providers need to have and in ways that end users would want.

Now, there's certainly a lot of advertising in the world that makes end users think that this is the only solution for ambulatory oxygen. It is certainly a great one. And we think we have a great full feature product out there. I think the sense that I have from a lot of customers I've talked to worldwide in the last six months is people are starting to -- providers are starting to realize what an expensive modality that is to have in a rental market -- you know rental fleet.

So I think people are coming back and looking at HomeFill which when you compare the five year or 10 year operating cost of a HomeFill system, which gives ambulatory oxygen with more ambulatory breathing time than any units of the equivalent weight that is battery powered, including our own. It also has no vibration, no noise, and no heat. It's really a fantastic solution. And the total cost to own that is minuscule compared to portable oxygen concentrators.

Now that said, there are some places where a portable oxygen concentrator that's based on battery power might be the better solution, which is why this year we launched the -- I think the world's truly only hands-free device, because now with remote control or through a Smartphone, someone can put it in a backpack mode and really have both hands free.

So now as we're out talking to customers worldwide about our respiratory portfolio and ambulatory solutions we have, we have things that are great that are based on HomeFill solutions, really low cost, really quiet, really lightweight for the durable solution that it is. And to get continuous oxygen flow, which you can't get in a battery powered solution.

And then for those who really want an active lifestyle, we're the only game in town in that regard. So we feel like we're going to have a good ambulatory year in 2020. And then, we've done a tremendous amount of work to innovate on our stationary oxygen concentrator line with huge investments in reliability improvements over the last 18 months, which are reflected in what customers are seeing and experiencing and that will lead us to a whole new product line of stationary concentrators in 2020.

So given all that, we're in a very, very different place than where we were a year ago when repertory was in a substantial decline in North America initially as a result of reimbursement changes and then later, as a result of internal changes that we made not to chase price and low cost, but really to deliver the best unit that we can put out in the marketplace.

Chris Cooley -- Stephens Inc. -- Analyst

Yes, just as a quick follow up to that, can you realize the value of that proposition? I think under the bundling you were previously able to bill both under $13.90 for the stationary tank, but also on the POC code. And really what I'm wanting to get out here with the investment that you're making in the respiratory side, how does this change the operating margin profile of that business as we think about calendar '20, the current year and then going forward longer term? Thanks so much.

Matthew E. Monaghan -- Chairman, President and Chief Executive Officer

Sure, we reimbursement up to our providers who are the experts on reimbursement in their markets, and they know very well how to deal with getting things reimbursed. So, I'd have to defer to market specific experts on that. But I think the margin in our business, despite being substantially smaller in the last year is incredibly better due to cost savings and really focusing on reliable solutions that stand up in the marketplace. That's been the big durable driver of improvements in the respiratory business.

We came into 2019 without a lot of optimism in the respiratory business, which means we didn't hold on to any fringe costs that might have been supported by an early comeback in revenue. We really took it all out and we put a lot of technical innovation into the units, sound principles that ends up making a big change in what I think now is market leading reliability in those products that customers are seeing already.

So that is on margins. And that should propel us into next year as providers don't always look at the lowest price, they want the lowest total cost of ownership and you can demonstrate there is a justifiable difference there.

Chris Cooley -- Stephens Inc. -- Analyst

Thank you very much.

Matthew E. Monaghan -- Chairman, President and Chief Executive Officer

Alright, thanks Chris.

Operator

With that, ladies and gentlemen, this will conclude your question-and-answer session. I'll turn the call back to your hosts for closing remarks.

Matthew E. Monaghan -- Chairman, President and Chief Executive Officer

Thanks, Jake, and thanks to everyone for their time and attention on today's call. Kathy, Lois, and I are available for follow-up questions throughout today and tomorrow. Thank you. Have a good day.

Operator

[Operator Closing Remarks]

Duration: 0 minutes

Call participants:

Lois Lee -- Director, Treasury and Investor Relations

Matthew E. Monaghan -- Chairman, President and Chief Executive Officer

Kathleen P. Leneghan -- Senior Vice President and Chief Financial Officer

Bob Labick -- CJS Securities -- Analyst

Mike Matson -- Needham & Company -- Analyst

Matthew Mishan -- KeyBanc Capital Markets -- Analyst

Chris Cooley -- Stephens Inc. -- Analyst

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