Invacare Corp (IVC) Q4 2020 Earnings Call Transcript

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Invacare Corp (IVC)
Q4 2020 Earnings Call
Feb 11, 2021, 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 Corporation's Fourth Quarter and Full Year 2020 Conference Call and Webcast. [Operator Instructions] This conference is being recorded Thursday, February 11, 2021.

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

Lois Lee -- Director of Treasury and Investor Relations

Thank you, Emma. 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 2020 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 of you dialing in, you can find a link to our webcast slide presentation 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 fourth-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 sequential 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 -- Chairman, President and Chief Executive Officer

Thank you, Lois, and good morning. Let's begin on Slide 3. We started 2020 enthusiastic for a strong year of commercial execution, launching new products and continuing to simplify our business. I'm pleased that despite the unforeseen pandemic challenges, we still managed to do all of those things and achieved remarkable results. For the full year, we delivered higher profitability at lower net sales, while expanding gross margins and reducing SG&A expense. We also achieve breakeven cash flow by prudently managing working capital with a special emphasis on reducing inventory. At the same time, we strengthened our financial flexibility by retiring debt and extending the maturity of a significant portion of convertible notes.

It was another great year of new products. Our innovation team added great new products expected to drive incremental sales and improved profitability. We also manage through challenging global supply chain disruptions and took steps to optimize our manufacturing network. We did this while quickly adapting to a new work environment to safety measures for our associates and creative ways to engage our customers. Our ability to conduct virtual training and support our customer's non-contact clinical assessment and the unique ability of many of our products to perform remote programing and diagnostics really put us ahead. For the best of best of these to widen our competitive advantage in the future.

2020 has made our business stronger. Invacare participates in durable, healthy markets and serves a persistent need for its products with a tremendous opportunity to grow by commercializing new products and servicing pent-up demand for purchases. We continue to simplify the business, so we can better serve our customers and make transactions easier. At the same time, we have a great team of people, working to drive efficiency and financial performance. After strong results in a challenging 2020, I have even more confidence about the bright future ahead of us.

On Slide 4, you'll see the fourth quarter, we delivered stronger operating income with a substantial increase in free cash flow. This was the result of overall good sales performance, cost containment measures and less restructuring in the period. As guided, in the fourth quarter, we achieved improvement in sequential consolidated net sales of 5.7%, in constant currency sequential net sales increased by 4.2%, driven by continued strength in respiratory products, increased sales of lifestyle products and growth in North America mobility and seating. These results were consistent with our expectations about the lessening of pandemic restrictions in the periods. Compared to prior year, operating income increased by $5 million and free cash flow increased by nearly $12 million. I'm pleased with the continued progress in the business and the improved financial results achieved during the quarter.

Turning to Slide 5, with fourth quarter, adding to the strong results from the three prior quarters, full-year operating income increased by $21.7 million and adjusted EBITDA grew by over 11% to nearly $32 million.

During the year we launched new products, improved gross profit margin and effectively managed SG&A expense to achieve these results. Importantly, after years of improvements, North America returned to profitability with more than $17 million increase in operating income and modest growth in constant currency net sales.

As mentioned previously, we generated breakeven free cash flow as a result of prudent working capital management. I'm pleased with the significant improvement in our key metrics. This demonstrates our strategic initiatives are working and that we have built a strong business foundation.

As demonstrated on Slide 6, having a full pipeline of compelling new products with meaningful innovation is at the core of our growth strategy. In 2020, our innovation and commercial efforts continued unabated. We launched new power wheelchair products in adults and smaller sizes, active manual, passive manual and Bariatric wheelchairs, folding compact power wheelchairs, power add-on beds, lifts and hygiene products. It was really a great year, adding to our portfolio, which will help us find more ways to engage with clinicians, and help them engage with end users looking for the latest solutions for independence and great healthcare aids.

In 2020, we also introduced the Pico Green product line, the first shower chair made using renewable materials from sustainable products and which eliminates 99% of surface bacteria, particularly maintaining a safer patient environment. These products come in many varieties and will help us engage with customers to provide better solutions for 24 hours of care. This is the kind of pipeline we expect to continue in the future.

Also in 2020, we completed the previously announced structural business improvements. We outsourced all of our IT infrastructure and began deploying our modernized IT system in the first stage in Canada and New Zealand. We're pleased with the system's new functionality and look forward to using these new systems to improve our customers' experience transacting with us, and to providing our associates with modern tools to simplify their work and improved results.

Additionally, in December, we successfully completed the German plant consolidation, which is anticipated to generate approximately $5 million in annual cost savings, starting in 2021. In 2021 we'll turn our attention to further optimizing operations and our manufacturing facilities, into working with our logistics partners, which should further improve results. In summary, 2020 was a good year in both results and from fundamental improvements that will help us grow and improve in the future.

On Slide 7, I'd like to take a brief moment to address how our ESG initiatives support our mission and enhance shareholder value. At our core, Invacare is a company focused on our mission of inclusion. After all our products are designed to maximize the person's independence and to help people achieve the best lifestyle and outcome in any setting they choose. Our business results are what we do every quarter and ESG guides us on how we achieve -- as an employer and community number, it's important for us to align our mission-driven purpose that yields great healthcare solutions for people and to do that in a way that engages all of us that work with us.

Three years ago we began a concerted effort to ensure Invacare is a responsible environmental steward, with employment practices and community outreach that engage with us. You can see the areas we're focused on to leverage our efforts to reduce waste, consume energy responsibly and engage with social purpose.

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

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

Thanks, Matt. Turning to Slide 9, during the fourth quarter, while constant currency net sales decreased compared to the prior year, revenues increased sequentially as healthcare restrictions began to loosen. During the early days of the pandemic, there was no playbook and now every day we learn how to be more effective in this new environment. We achieved a higher gross profit margin, both year-over-year and sequentially, despite continued supply chain challenges with the benefit of previous initiatives and product mix. To offset lower sales, we took actions to reduce SG&A expense and improved operating income by $5 million. As we will discuss later, some of the reduction in SG&A expense was a result of lower sales and related business activities. However, of the available actions we implemented, many of them are durable. That said, as revenue grows back, we expect that selling expenses like commissions will return, but this is a good thing and will allow us to scale against our SG&A expense.

At the end of the year, free cash flow was helped by the increase in third quarter sales that were collected in the fourth quarter. In addition, our colleagues around the globe were diligent in managing down inventory, which peaked in the second quarter as sales declined faster than fulfillment levels could be reasonably adjusted. I am pleased with how quickly we were able to adapt.

Turning to Slide 10, while the pandemic had little to no impact on sales in the first quarter, by late March to early April the whole world had gone into a simultaneous and hermetic shutdown, which lasted throughout mid-summer. Access to healthcare was oftentimes limited to only pandemic related or urgent care, with elective care suspended or delayed. As a result, consolidated net sales declined significantly in the second quarter and have continued to improve throughout the year, but have not yet returned to pre-pandemic level. Each of the product lines was impacted differently, which I'll address in more detail on the next slide.

Despite lower revenues, gross profit as a percentage of sales improved by 60 basis points, due to favorable sales mix and prior actions taken to expand margins. As mentioned previously, we executed both temporary and durable actions to reduce SG&A expense to match the lower sales level. As a result in 2020, we managed to grow operating income, reversing course from an operating loss in 2019, a significant turnaround in results. In addition, adjusted EBITDA improved over 11% from 2019 and free cash flow exceeded our expectations.

Turning to Slide 11, as Matt discussed in the previous two quarters, the pandemic had a different impact on each one of our product lines. Mobility and Seating product sales began to see early signs of recovery as consolidated sequential net sales improved modestly. North America's sequential sales growth of 3.3%, was more than offset by weakness in Europe as more stringent public health restrictions imposed during the fourth quarter continued to limit access to our customers and end users.

As our products mainly serve chronic conditions, we believe these sales are generally non-perishable and these delayed sales will be fulfilled in 2021. Our new Mobility and Seating products are beginning to contribute as well, and we expect their contributions in 2021 to help lift the category even higher.

Lifestyle Products grew sequentially, driven by Europe, with strong demand in all product categories, primarily bed and bed related products. Respiratory, which continue to experience elevated demand globally, increased by over 75% compared to the prior year, and also grew sequentially, driven by sales of stationery oxygen concentrators used for the COVID-19 response. Global supply chain issues that were almost insurmountable during the second quarter have improved considerably, but still impact our ability to meet the outsized demand. We continue to experience global demand in excess of our ability to supply, currently impacted by transportation and logistics delays.

Turning to Slide 12, Europe constant currency net sales during the fourth quarter decreased compared to the prior year, as growth in respiratory was more than offset by lower sales of Mobility and Seating and Lifestyle products. Sequentially, reported net sales increased 10.8%, driven by increases in Lifestyle and Respiratory products. Europe continues to be impacted by more recent pandemic related measures, which may limit our end users ability or willingness to obtain healthcare, although our customers generally remain open. As a result of the lower sales both gross profit and operating income declined, and we incurred unfavorable manufacturing variances from the lower volume.

For the full year, although we saw sequential improvement in net sales in both the third and fourth quarter, overall sales were limited by the pandemic. Historically, the second half of the year is seasonally stronger due to higher sales of Mobility and Seating products, primarily scooters in Europe, which are popular during the warmer months. Strict health restrictions in many of our key markets dampened sales as our end users had limited opportunity to enjoy being outside or travel freely. As a result, we saw the same impact on gross profit and operating income for the full year as we did in the fourth quarter.

Turning to Slide 13. In North America we achieved higher constant currency net sales in both the fourth quarter and the full-year, driven by two primary factors. First, we saw a tremendous growth in sale of respiratory products primarily stationary oxygen concentrators. Not only did we see higher unit volumes, we also realized a favorable mix shift toward higher acuity products. Although, sales increased significantly, fulfilling these orders was not easy. We had to battle multiple global supply chain challenges early on when our suppliers were closed due to not being deemed essential businesses, had difficulties assembling our workforce and inefficiencies driven by the scarcity of transportation and logistics. While most of these issues have resolved themselves, we feel an impact today.

The second factor is that the individual states in the U.S. never fully shutdown cohesively as the countries in Europe. As long-term care facilities closed their doors to new residents, we saw a shift toward home healthcare, an area where we have a strong presence. With improved sales, we were able to expand gross profit, which improved 510 basis points for the quarter and 260 basis points for the full year. This was largely driven by favorable sales mix and lower freight and material costs.

Importantly, operating income improved by $4 million for the quarter and by $17 million for the year, as we realize the benefit of transformation initiatives, which return the segment to profitability. I'd like to commend the team on all their hard work, which led to such great results.

Turning to Slide 14, we made great progress in Asia-Pacific, as constant currency net sales improved year-over-year and sequentially. In the fourth quarter, constant currency net sales increased 16.2%, driven by all product categories with a nearly 36% improvement in mobility and seating sales. Sequentially, reported net sales increased 11.5%, driven by mobility and seating sales. Operating loss for all other improved, driven by higher operating profit in the Asia-Pacific business and decreased SG&A expense related to corporate stock compensation expense.

Moving to Slide 15. As of December 31, 2020, the company had approximately $273 million of total debt and approximately $105 million of cash on its balance sheet. In 2020, we took proactive steps to improve our financial flexibility by retiring approximately $25 million of convertible notes in 2021. In addition, we extended the debt maturities to November of 2024 of a significant portion of our convertible notes, which were due in 2021 and 2022. As a result of these actions, the remaining balance of $1.3 million of the 2021 notes will be settled in cash this month. As always, we will continue to assess opportunities to further optimize our capital structure.

I will now turn the call back over to Matt.

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

Thanks, Kathy. Let's shift from talking about strong results in 2020 and talk about the future as we provide our outlook for the company's expected performance in 2021. We now know so much more about operating in a pandemic and we anticipate it's going to have a heavy influence in 2021, both in restricting access to healthcare and affecting supply chain and logistics, much like it did in 2020. We also have a view on improvements we're going to make in 2021 to make another great year.

On Slide 16, we show guidance with expected operating results for the full year 2021 to consist of the following. Constant currency net sales growth in the range of 4% to 7%, we're giving a range of revenue, reflecting good growth over 2020 with the range providing for variations in sales by product line and in key markets depending on how the pandemic unfolds. Given these assumptions, this is expected to result in a 41% improvement in adjusted EBITDA, taking us to $45 million, and free cash flow generation of $5 million.

Based on the healthcare restrictions currently in place, especially severely in Europe, consolidated reported net sales in the first quarter maybe down slightly to mid-single-digit, compared to prior year, which was not impacted by the pandemic. We're bullish for the full year, expecting a strong uplift in the second half with public health restrictions are lifted. While, it's impossible to project the exact path of the pandemic in 2021, we remain confident that as weather gets warmer in the Northern Hemisphere, where we do most of our sale, and as people desire to get outside and as vaccines become more widely available, we'll see strong sales growth, driven by new products and pent-up demand from 2020.

As I mentioned earlier, we expect some increase in SG&A expense, primarily to support increased sales, although it should remain below 2019 spending. Not yet factored into guidance is the anticipated benefit related to improved customer experience and efficiencies from the IT modernization initiative as it's rolled out in North America.

Finally, free cash flow is expected to be lumpy in the quarters, especially in the first half, if we fund seasonal inventory early in the year and payments for 2020 programs like severance from the German plant consolidation and deferred taxes. Our guidance demonstrates the continued confidence we have in our strategic plan and our ability to drive future growth.

We'll put a bow on it at this stage on Page 17 with a summary and a thank. While we could not have predicted the pandemic, the test of the result of our customers, suppliers, associates and the people who rely on our products every day, I am incredibly proud of all we accomplished. This would not have been possible without the inspired and tireless support of our associates who battled through global supply challenges, found creative ways to engage with our customers and end-users and adapted quickly to a new working environment, all while ensuring the health and safety of our colleagues.

Looking ahead, we have clear objectives with the focus on delivering sales growth and generating gains in our key markets, which we expect will result in significant improvement in profitability and free cash flow. We're confident the long-term economic potential for Invacare remains strong. Later this year, we'll provide an update on the timing of our longer-term targets, which we believe will achieve according to our prior and ongoing strategic initiatives as they continue to gain traction and as consequences of the pandemic sub-side.

I want to thank you for taking time for the call this morning. We will now take questions. Emma?

Questions and Answers:

Operator

[Operator Instructions] We will now take our first question from Robert J. Labick from CJS Securities. Please go ahead. Your line is open.

Robert James Labick -- CJS Securities -- Analyst

Good morning, and congratulations on Q4.

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

Good morning Bob.

Robert James Labick -- CJS Securities -- Analyst

Strong performance for the year, of course. Sorry, I was taken aback by the Robert J Labick part. So I wanted to dig into your revenue guidance for a second. Seating and mobility, mobility and seating was down about $60 million in 2020. And as we've discussed on prior calls, I think you mentioned today too that shouldn't really be lost. It should be kind of deferred and coming back. So assuming that comes back, what are kind of the offsets or what are -- how much impact from COVID are you building in? I feel like, given if that $60 million comes back and you could be a little bit conservative, and so I'm just trying to see what the other offsets are or if that shift just keeps going to the right a little bit in mobility and seating.

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

Yeah. That's a good question, Bob. Although, I think we've all become accustomed to dealing with the pandemic generally. When we look in the markets, we serve, there's still some raging consequences and it's different by country that we serve or provider payer. Europe is still very close in some markets and starting to open another. So what we tried to do is just triangulate where and in what fashion this is going to come back, especially considering mobility and seating is especially strong in the second and third quarters in the fair-weather months in the Northern Hemisphere. So we looked at a market that's probably low-single digits in cyclical growth, 4% to 7% maybe two to three times that and it's probably not going to happen in first quarter. So we're trying to figure out how that comes in maybe transitioning in second quarter, but stronger in the second half and that leaves us to a 4% to 7% to start the year in our outlook for full-year.

Robert James Labick -- CJS Securities -- Analyst

Okay, great. Just kind of following up there. Obviously, North America was relatively flat and Europe took the bigger hit in 2020. How do you see -- generally speaking, I don't know if you know you not go into numbers per se, but just the revenue recovery or the growth on a constant currency basis by region?

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

Right, by region. Yeah, I think it's kind of a mix in the sense that North America given social pandemic measures haven't been as severe, there probably isn't quite as strong to bounce back if it wasn't strongly depressed. We have a more balanced profile seasonally in the year based on the different product segments. So I think, I don't know that it looks like the historic strong seasonality that people may be familiar with. I'm sure you're familiar with, but I think a little more balanced. In Europe, there are some countries that are still pretty severely restricted, U.K. in particular, I think has never really come back since March of last year. So it's really predicting the ton complexion of how those European markets come back and in super-imposing it with the calendar seasonality of warm weather. So I think as Europe has come down more severely, it's probably going to grow more back to prior levels with the normal amount of catching up that you'd expect. So that's kind of the only way to answer your questions. It's a little less down in North America. So a little less of a strong recovery. More severely down in Europe with a expected stronger recovery, especially in the warm weather months, two and three quarters.

Robert James Labick -- CJS Securities -- Analyst

Got it. Great. And then as it relates to the IT transformation, the Birlasoft and everything in North America. Did you say the expected future benefits -- obviously there's been plenty of cost savings in North America, but did you say the future cost savings from that are not yet factored into your guidance or how are you thinking about the further expected cost savings that you have discussed? You've not quantified but discussed from the IT transformation.

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

Yeah, there should be three kinds of benefits. First and foremost, are going to be benefits to our customers who have a much easier time transacting with us with modern mobility tools to order and browse and catch up with order status and so on. Much like all of us probably have with Amazon or platforms like that. On the inside with our company having better tools to optimize how we operate, we will have lower cost of transactions, and we'll have better working capital because we have tools that allow us to manage inventory and other kinds of purchases more definitely.

We had not factored those into 2021. We want to do is make sure it's implemented well. It will probably be feathering in over the year, and I don't know that we'll get enough of it done to standing here right now in first quarter make a big commitment on exactly how much that saving is going to be for full year 2022. It should be very important, but we'll see how it goes in 2020. And primarily we're struggling with how do you estimate the revenue impact of being so much easier to do business with, where we already have a fantastic portfolio of products. So that's really the starting line that we'll get into, and I'm sure as we get into the year we'll have visibility as we bring our customers into working with us on the system rollout.

Robert James Labick -- CJS Securities -- Analyst

Okay, great. I will jump back in queue. Thank you very much.

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

Thanks, Bob.

Operator

Thank you. We will now take our next question from Matthew Mishan from KeyBanc. Please go ahead. The line is open.

Matthew Mishan -- KeyBanc Capital Markets Inc. -- Analyst

Hey, good morning, Matt and Kathy also. I hope all is well.

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

Hello, Matt. Good morning.

Matthew Mishan -- KeyBanc Capital Markets Inc. -- Analyst

First, I just wanted to -- I just want to have it out with the modeling. Can you provide what your full year 2021 FX assumption is? And then also for 1Q net sales flat to down, mid-single digits, what does that imply for a constant currency growth or declines?

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

Kathy?

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

Sure. So, Matt, from a FX perspective, we model at basically the Q4 rates, so the Q4 rates that you would have seen in 2020 is what we model out to on a go-forward basis. And so the rates are actually a bit stronger than what we saw in the first three quarters of 2020. And from that perspective, from a constant currency perspective, the constant currency would be similar to the 4.7, actually the 4.7 is the guidance that we're giving is on the reported numbers obviously, but it would be consistent with the Q4 '20 FX assumptions.

Matthew Mishan -- KeyBanc Capital Markets Inc. -- Analyst

Okay. And then just switching over to post-acute respiratory. As we've seen like the progress, as you kind of see the progression of it through like several surges, how long are patients typically on that continued? Its high mill lead our oxygen flow. Is there a sense of recovery after several months as our percentage moving off therapy, and then moving to like ambulatory solutions, where you could go from the station, are you seeing some kind of uplift in transfill or POCs?

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

That's a bit of a clinical question, Matt. I can give you maybe a general answer. Of course, with the number of people suffering from the pandemic or COVID-19, there are a full distribution of consequences of people who never need oxygen and people who've never recover or don't survive, I can't say that we have data yet to track how long the average or some percentile of patients are on oxygen. But we see high demand for all modalities of oxygen increasing. I think as we have said on our previous call, we even see increases in portable now, because at the margins there are some people who only need a little bit of oxygen. I don't know that it's because of the ambulatory or it's just because they need the lower volumetric rates that are available from portable forms of oxygen, but people who we need a little bit could solve that problem by using a portable device and we see an uplift in all the modalities that we have, but most strongly in stationery. The WHO recommended an incoming triage of oxygen that starts at 5 liters a minute and goes up from there as a person's case progresses, quickly getting into of 10 liters or above. So that's normally the threshold, but we see all modalities increasing.

Matthew Mishan -- KeyBanc Capital Markets Inc. -- Analyst

Excellent. And then on seating and mobility and I think last quarter you talked about quoting and orders improving that give you confidence into the fourth quarter or through the remainder of the year, but sequentially, in North America from 3Q to 4Q was flat, and really it was flat from the 2Q troughs. I get why Europe is more restrictive. Why do you think there wasn't more of a sequential back half improvement in the release of pent-up demand in North America?

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

Well, I think if you consider where the big population centers are,10% of the United States is in California. You did know from recent reports that California's in worst situation then that was in the second quarter. Other population centers like New York is still struggling and I think that's kind of the profile, where we see, if you were to look at the total population as being affected by COVID. Fourth quarter wasn't as strong a pandemic relief as we had maybe thought it could be, but we were pleased with the strong sales through the end of the year and continued strong demand into this year.

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

And I would highlight...

Matthew Mishan -- KeyBanc Capital Markets Inc. -- Analyst

Thank you.

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

Mobility and seating sales in North America did grow sequentially by 3%.

Matthew Mishan -- KeyBanc Capital Markets Inc. -- Analyst

All right. Thank you, Kathy.

Operator

Thank you. We will now take our next question from Mike Matson from Needham. Please go ahead, the line is open.

Mike Matson -- Needham & COmpany -- Analyst

Good morning, thanks for taking my questions. I just wanted to ask about the new stationary concentrators that you're planning to launch. Can you give us an update on the timing of that? Whether or not this strong demand that you've seen from COVID patients has affected the timing there at all of that launch?

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

That launches in final pre-market work. So we can't say too much about it at this point, but essentially no change in our excitement about having the product launch, and having it come out here relatively soon. We think the pandemic demand will continue for some time and extraordinary value of this new system, which provides great customer benefits, including total cost of ownership benefits and great consumer end user benefits will make this an exciting segment for us for a long time.

Mike Matson -- Needham & COmpany -- Analyst

Okay, thanks. And then I wanted to ask about the supply chain challenges that you're facing. Is it primarily logistics and shipping related? Is it component shortages, or is it a combination of both? And then we've seen some headlines about these chip shortages that effected Invacare at all.

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

Definitely, and it's not isolated to Invacare or our industry. It's definitely not related or isolated to our industry. People would have seen, I think, in the Wall Street Journal this week, Ford Motor Company, the capping production of its most popular -- profitable product line F-150. So Ford's having problems with their leverage and component needs. You can imagine, every other industry and company around the world is probably facing some kind of challenge. Shipping companies took container ships off the water years ago to secure whatever the pricing equation they were going after. That really is hurting the whole world. Now it's tough to get on containers and then you have all the consequences of COVID-19 affecting shipping crews and stewards and imports and getting things on to distribution logistics provider.

So I think our whole economy, speaking more than just our company or industry are going to be plagued by this all year, and I'm excited about what our employees have learned to do to combat this in the last year, but it is going to be, I think a scene for 2021, is just challenging to think through a supply challenges, which I'll just call generically, whether it's electronic components, that have been highlighted in the automotive industry, where electronic component manufacturers are taking orders now through the fourth quarter to make sure they understand how to allocate supply to logistics companies, which are facing their own challenges every day, and working really hard to serve us, but it's still different than the normal year.

Mike Matson -- Needham & COmpany -- Analyst

Okay. But I guess the important point that you just made there that you contemplated this continuing through the year and the guidance that you've given us?

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

Yeah. Yeah. As we give it today. I'm sure could get worse, but I think we've got a reasonable assumption about how it will operate this year.

Mike Matson -- Needham & COmpany -- Analyst

Okay, great. Thank you.

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

Thanks, Mike.

Operator

Thank you. We will now take our next question from Chris Cooley from Stephens Inc. Please go ahead, the line is open.

Christopher Cook Cooley -- Stephens Inc -- Analyst

Good morning, everyone, and congratulations on a really impressive results and a less than normal year there last year. Just -- just two quick ones from me here this morning. First, this is the first time that you all have provided positive constant currency sales growth guidance for the full year and when we look back to the model like six, eight, nine-plus years since the company grew. And you've done a phenomenal job to get the company to this point to inflect to this next kind of phase. Just curious conceptually, what types of investments and what kind of mindset changes you have to implement now to transition to growth orientation versus a cost reduction, cash preservation type mindset to kind of right-size the business to kind of prepare for this level? And then how we should think about those from investments that will be taking place throughout the course of the calendar year, possibly into 2022 and then I'm just kind of follow-up as well?

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

Okay. Yeah, it's a great area to discuss because it is a shift as our organization transitions away from focusing on the transformation or the turnaround that we've been talking about for five or eight years and talking about growth. It starts with great commercial organization. We have a super, super sales team in all our regions, who have gotten even better in 2020, figuring out how to support customers when customers are having a tougher time themselves and doing that with all the crazy constraints that the pandemic is placed on us. So it starts with having the great talent in the sales team, great leadership to the guided plan. Then you have to have a combination of reasons to be excited to engage with an Invacare commercial representative, and we think products focused on what the customers are trying to do to serve their end-users and do it cost-effectively and what end-users really want that's new and different is the rest of there.

So, we have great people, you can check that box very strongly. Based on what we've presented this morning and talked about previously, hopefully, people see easily, we have a phenomenal portfolio of products that you give our sales team. A lot of confidence to engage your customers and customers a lot of curiosity to engage with us. Investments, per se, come in the form of demo units and production tooling, but that all fits in the normal level of capex that is typically in our budget. So that shouldn't change to extraordinarily. And then, just making sure that we're efficiently forecasting how that demand escalates, so that we can have inventory flowing mostly through the system, that's really the recipe. R&D is led by a great team of leaders and staff by a wonderful team of associates that get that work done and we're so pleased with the amount of innovation that comes out of our roughly 2% of sales, that goes into R&D every year and that should continue. And I think that's the other thing is that accounts can not only buy into Invacare for products, but buy into Invacare in terms of being easier to do business with and being here to support all their needs very broadly, which we should be able to do based on the breadth of the company has to offer. Really excited about starting to do that from now on.

Christopher Cook Cooley -- Stephens Inc -- Analyst

Appreciate that additional color and then the answer. Maybe just two quickies here for me to wrap things up. Then when you look at the guidance for this current year, again positive constant currency sales growth in huge one, very similar in -- in there in adjusted EBITDA and it's great to see positive cash flow. But when you think about the adjusted EBITDA number, roughly 5% if I look at the midpoint of the revenue guidance, longer-term, what type -- when you look at the model today with cost that you've take now to put it in terms of the mix. Is this from an adjusted EBITDA perspective the high teens business or a low 20s business or is it maybe closer to high-single-digit, low-double digits, and just trying to curious, what do you think about in terms of the margin profile to your longer-term now that you can start to drive growth again?

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

Yeah. All our products are designed or all our new products, which we've been coming out within the last couple of years are designed to do really compelling things for end users and customers and to flow more effectively through our infrastructure of distribution and manufacturing. So our margin profile should continue to improve. There are some things that haven't scaled yet and so we would expect as sales continue to grow that our SG&A is leveraged and we don't grow SG&A at the same amount. The sales component of SG&A will increase a little bit this year, Kathy and I both commented on previously. As we support higher sales, we look forward to that. And we should get leverage on the G&A portion, especially this year toward the back end in North America and next year 2022 in Europe, as we continue to deploy this IT system that makes transacting with us very efficient and lower its cost.

In the long term, our outlook for the business and our ability to generate, EBIT doesn't change from what we've been talking about. I think just early here in 2021, we've got to see how 2021 plays out years post that target out there. We want to be pretty precise in timing, and it's a little bit early for that. But fundamentally, our outlook for the -- the ability for the business to generate EBIT or EBITDA hasn't changed from what we've been talking about long-term outlook in the last couple of years. Really no change.

Christopher Cook Cooley -- Stephens Inc -- Analyst

I appreciate that and congrats on all the progress.

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

All right. Thanks a lot, Chris. It's good to talk to you.

Operator

Thank you. I will now turn the call back to your host.

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

Thank you, Emma, and thanks to everyone for taking the time this morning and attention for today's call. Kathy, Lois, and I are available for any follow-up questions and you can contact Lois to coordinate that. Hope you have a good day. Thank you.

Operator

[Operator Closing Remarks]

Duration: 42 minutes

Call participants:

Lois Lee -- Director of Treasury and Investor Relations

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

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

Robert James Labick -- CJS Securities -- Analyst

Matthew Mishan -- KeyBanc Capital Markets Inc. -- Analyst

Mike Matson -- Needham & COmpany -- Analyst

Christopher Cook Cooley -- Stephens Inc -- Analyst

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